Business owners left out of tax review

The interests of small and medium sized businesses may go largely unrecognised because of limits on the membership and scope of a new federal tax review, industry groups say.

Treasurer Wayne Swan yesterday revealed the Federal Government will launch a wide ranging review into the federal tax system, which will provide reform recommendations by the end 2010.

But while there is a general recognition of the need for tax reform, business and tax groups have questioned the terms of reference and membership of the review.

The review, to be chaired by Treasury Secretary Ken Henry, has only one business representative, Australian Industry Group chief executive Helen Ridout, with two academic economists and another senior bureaucrat completing its membership.

Tony Greco, the chief executive of not-for-profit advocacy group Taxpayers Australia, says there is a risk the review may not properly understand a business owner’s perspective on tax issues.

“You need some people in the tax industry aware of all the issues and business people who understand the cost of administration side of tax. Small, medium and large businesses should be represented and the tax profession that work with the tax system everyday,” Greco says.

Institute of Chartered Accountants in Australia tax counsel Ali Noroozi agrees that broader representation from the business and tax profession would improve the review.

“The Government could consider adding to the panel some external people from the business community and tax profession – only one person from the business community is not enough and more external members would help improve the independence of the review,” Noroozi says.

Limitations on the scope of the review could also limit its ability to recommend reform of relevance to small and medium sized business.

Although he welcomes the review, Victorian Chamber of Commerce and Industry head of economics and industry policy Steven Wojtkiw says for many smaller businesses are more concerned with state, rather than federal, taxes.

“A federal tax review could be of benefit to many businesses if it leads to a reduction in company tax, but the burden of taxation does fall quite heavily on small and medium sized businesses in the form of state and local taxes and charges,” Wojtkiw says.

The almost total exclusion of the GST from the review’s terms of reference – to honour a Labor election promise not to increase the GST burden – will also limit its effectiveness.

“That exclusion does limit the extent to which such an exercise can generate meaningful reform, but even so there are questions in terms of personal and company tax that are significant for business,” he says.