Some of the Federal Government’s proposed new levies could foster tax avoidance by increasing perceived inequality, an accountant believes.
In particular, the debt levy and paid parental leave scheme levy would serve to widen the discrepancy between the corporate tax rate and individuals’ highest marginal tax rate, which could inadvertently incentivise tax avoidance or changing one’s status in order to pay the lowest rate, William Buck tax director Greg Travers said.
“The differential is 19.5 per cent, up from the current 16.5 per cent. People perceive this arbitrage as inequitable. The differential is significant and I expect we will see taxpayers trying to take advantage of it – legitimately and illegitimately,” he said.
The Government has proposed cutting the company tax rate to 28.5 per cent from July 2015 for businesses that do not pay the parental leave scheme levy.
Meanwhile, it has suggested increasing the highest marginal tax rate to 48 per cent following the introduction of the debt levy.
“In our experience, the more complex a tax system is, the greater the opportunity and incentive for tax avoidance. Higher levels of avoidance inevitably lead to more integrity measures in the tax laws, which in turn add to compliance costs and shift a greater portion of the tax burden to those taxpayers who are trying to comply with the law,” Travers said.
He said the Commission of Audit’s recommendation to levy income tax back to states would be another hazardous addition.
“One of the key reasons for their proposal is the idea that competition between the states will produce a more efficient and effective tax system. This is not what experience tells us,” he said.
“Even the most cursory consideration of existing tax systems shows that such an approach would add further complexity to the tax system. This again increases opportunities and incentives for tax avoidance.”
