Survey finds business backs simplified tax system for SMEs

A survey of 900 companies has found that most would be in favour of a two-tier tax system, with a simplified tax system for SMEs.

The survey, conducted by accounting firm Pitcher Partners, found 78% of respondents backed the change to a two-tier system which would exclude SMEs from complex tax rules around tax consolidation and taxation of financial arrangements.

Pitcher Partners partner Ray Cummings said the tougher question was around the dividing line that would separate a big company from a smaller company for tax purposes.

“In terms of a dividing line as to which taxpayers would be subject to the less complex system, $100 million turnover was the most popular figure advocated by those businesses surveyed.”

The survey comes as Treasury Secretary Ken Henry reviews the tax system. He has promised particular focus on the corporate tax system and has openly discussed the idea of an “entity flow-through” tax system for small companies, which would reduce complexity.

However, 65% of respondents were against this approach. Instead, there was strong support for a system where a company’s taxable income would be based on audited accounting profits.

Cummings says that while the simplicity of this concept is attractive, respondents might be less happy with the idea of having to calculate complex “permanent and timing adjustments” to figure out their taxable income.

One surprise finding was that respondents were broadly pleased with the 30% corporate tax rate, with 75.6% saying “no” to a reduction in the corporate tax rate if it meant a
corresponding increase in the GST rate.

Four out of five respondents wanted the 30% corporate tax rate to be aligned with the highest personal tax rate.

“There was a clear view that anything in excess of 30% was too high.”