Company tax timing trick is costly for business

Sinclair Davidson has a great article at the Conversation explaining the implications of requiring companies to pay company tax monthly rather than quarterly (Timing is everything), a measure announced in yesterday’s Mid-Year Economic and Fiscal Outlook (MYEFO). Highlights include:

The government is very careful to tell us that “this measure is estimated to raise $8.3 billion on an underlying cash basis over four years”. That may sound like a lot of money, but the government expects to raise about $317 billion in corporate income tax over the same four-year period. The next thing to note is that this is a cash-basis analysis. The corporate sector will not pay any more money to the government; it will just pay some money earlier and not later.

This matters because the government faces timing problems. $5.5 billion of the $8.3 billion gets paid in 2013-14, pushing the budget into surplus for that year. That is if everything else goes to plan. That the 2013-14 budget is a surplus only due to a timing change indicates trouble.

He goes on to point out the increased compliance costs of having to pay company tax on a monthly basis. Corporate Australia is not happy about this, and earlier today the Woolworths CEO criticised the change, as reported in the AFR (paywalled) earlier today:

Mr O’Brien said Woolworths was currently calculating how the monthly tax payments would impact on earnings and cash flows.

“Naturally it’s a cost because its going to affect our cash flow and therefore our cost of funding and it will cost us in terms of administration,” he said.

“It [will be] an impediment on our business as it will be on all businesses paying company taxes in the years ahead, then that’s an impediment by any description.”

This is bad policy, but once introduced I doubt any future Government will reverse it, as it will make Government cash management a lot easier, and it will provide more timely information on the state of corporate Australia and the broader economy.


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