In this month’s INTHEBLACK magazine you’ll see, amongst other things, a piece by our Senior Tax Counsel Garry Addison regarding a proposed Malaysian GST from mid 2011. Similarly to Australia, where it took a few attempts to get a GST over the line, Malaysia has been down this path before, but in the past has decided the timing to introduce such a tax was not opportune. However, it is now firmly back on the agenda (perhaps as a matter of necessity hastened by the recent GFC), with the Bill to be debated in the Malaysian Parliament later this month.

Anticipated to raise an additional RM 1.4 billion per annum, it is also proposed to replace the current sales and services tax (SST). The rate is expected to be 4 per cent but this is not actually articulated in the Bill (along with many other important details).

As Garry notes in his article, the proposed Malaysian GST:

‘is likely to be a pioneer in how the GST will impact Islamic financial services. We understand that some other relevant jurisdictions (e.g. UAE, Pakistan) are also planning the introduction of GST/VAT systems. Australia has also recently considered the taxation of Islamic financial services in the context of developing a suitable framework for enhancing Australia’s role as a regional financial services hub. A Malaysian GST law which adequately and fairly addresses the impact of GST on such services could thus become a useful reference tool for a number of other countries with an interest in this area’.

Keep an eye out on the CPA Australia website for the forthcoming professional development sessions that will be on offer in the Malaysian Division on getting ‘GST ready’.

Further information
• Goods and Services Tax Bill 2009
• INTHEBLACK Magazine, March 2010

Smooth sailing!

Were the fiscal stimulus lump-sum payments the Australian and other governments made to households to fight the affects of the Global Financial Crisis a waste of taxpayer resources, and similar to Milton Friedman’s often quoted analogy of throwing money out of a helicopter?

The answer, according to research published by the Reserve Bank of Australia titled Estimating Marginal Propensities to Consume in Australia using Micro Data [PDF] on the 2nd of December 2009, is a ‘qualified no’. That is, while a proportion of lump-sum payments were spent to stimulate the economy, the research shows that a permanent tax cut may have resulted in a greater proportion of that money being spent, creating greater stimulus for the economy.

The paper does not model how Australian households spent (or otherwise treated) their lump sum received earlier this year and late last year, nor how they spent the tax cuts many received in July. The research instead models the effects of tax cuts over 2005 to 2007 and two specific lump-sum transfers – the Baby Bonus and the Carer Bonus. Having stated this, the publication still serves as a valuable piece of research that policy makers should consider before they consider future options to stimulate the economy.

The research can be read as stating that if the intention of a government is to increase consumption, then permanent tax cuts are a better policy option because a greater proportion of the cut is likely to be spent. Having stated that, the research reaffirmed the long held view that lower income households spend more of their tax cuts and lump-sum payments, hence governments should get ‘greater bang for their buck’ if tax cuts and/or lump sum payments are directed to lower income households. The research also showed that where households are especially concerned about maintaining their income, they are more likely to save any tax cuts or lump-sum payment.

As the paper says in its conclusion, the results need to be interpreted with a degree of caution, however overall, the marginal propensity to consume from a lump-sum payment such as the Baby Bonus (which is given at a time a high expenditure, particularly for families having their first child) is lower than the marginal propensity to consume from permanent tax cuts (which are perceived to be persistent).

While the research does not criticise the lump-sum payments made by the Australian Government, the paper does support the recommendation CPA Australia made to the Government in February 2009 [PDF] and in our 2009-10 pre-budget submission [PDF], which was that the Government considers either a partial or full bring-forward of the proposed 1 July 2009 and 1 July 2010 tax cuts. This recommendation was valid in the economic environment of early 2009, but less relevant now (unless conditions dramatically change for the worse and there is a second GFC wave – but no-one is suggesting this as a possibility.)

Smooth sailing!

The Australian economy is showing remarkable resilience. And the stock market is showing even more positive signs. Will it be the ‘Nike swoosh’ recovery trend on the graphs? Or the ‘double dip’ ‘big W’? Or something else? I’m not in the business of giving these types of forecasts. But over the last few months, it is clear there has been a lot of value in the markets. However, I also note that those investors that decided to ‘sit it out’ for a while are still getting around 4% ROR on government secured term deposits, which of course is always preferable to taking a loss. But what of the future of investing? What if we lose our imputation credits? What would that mean to many Australian’s retirement savings strategies? In our recent submission on the Henry Tax Review’s second consultation paper, we indicated that CPA Australia was very supportive of the current dividend imputation system and that we did not see a compelling case for a move away from it at this stage. We particularly noted the significant importance of the existing imputation regime for the retirement income strategies of older Australians including self-funded retirees.

We were, therefore, pleased to note that in a recent speech Dr. Henry took the opportunity to provide an insight into the Review Panel’s thinking on Australia’s company tax arrangements, including the imputation system.

While noting Treasury’s earlier concerns as to how dividend imputation could become less relevant in an increasingly globalised economy and the fact that Australia and New Zealand are now the only two OECD countries with such a system, Henry said that he did not now think the time has yet come for dividend imputation to be abandoned.

He noted in this regard the significant benefits arising from dividend imputation including particularly for SMES and the fact that it encourages Australian companies to pay Australian tax.

That said though, it seems likely that Treasury will continue to look in the medium term for alternative means of accessing the benefits of imputation that are better attuned to the needs of a global economy including Australia’s reliance on foreign capital.

Further information on the above and the Henry Review generally are available from the Treasury website.

I’m interested in your thoughts - why not drop me a line and let me know?

Smooth sailing!

It was reported earlier this week that the Australian states are now getting excited about state tax reform. While it is encouraging to see the states at last supporting reform, arguably they have little choice as their revenues are facing a steep decline as a consequence of the current economic downturn. CPA Australia has been calling for ‘root and branch’ reform of state taxes for a number of years, both via regular submissions to state governments and the Commonwealth and also in conjunction with other business organisations such as the Business Coalition for Tax Reform.

CPA Australia’s submissions over recent years have considered reforming the inefficient and narrow-based transaction duties on property transfers and insurance policies which should either be eliminated as soon as possible or phased-out over a specified period. Motor vehicle duties could be replaced with taxes more closely related to vehicle usage such as road user charges or congestion type levies.

Not all state taxes are inefficient and there is a strong case, in the absence of any increase in the GST, for retaining existing payroll and land taxes particularly if they can be reformed by widening the respective tax bases to enable the existing rates to be reduced. This is not a popular option with everyone because it is sometimes seen (somewhat erroneously?) as a tax on jobs.

There would still be significant costs involved in this exercise but a possible way to balance the budget could be to give the states access to the personal income tax base subject to specific terms and conditions set by the Commonwealth. This is a form of tax sharing common in other comparable jurisdictions such as Canada.

These changes could also pave the way for a move to a truly national tax system with one administrator rather than the existing eight state revenue offices and the ATO.

It has been suggested recently that the Henry Tax Review places a significant priority on state tax reform which, if true, is welcome news since the current review provides an ideal opportunity for major and long overdue reform in this important area, effectively following on from the earlier changes to state taxes in the context of the introduction of the GST in 2000.

Take a look at our most recent submission [PDF] on state tax reform, and let us know your thoughts.

Smooth sailing!

Earlier this week, the Australian Tax Office released its 2009-2010 Compliance Program.

In what is now an annual event, the Compliance Program provides an excellent high level overview of where the tax office intends to focus its resources regarding service and enforcement activities in respect of taxpayers and the tax laws.  It includes details about individuals, micro businesses, SMEs, NFPs, super funds and right up to and including very large businesses and international transactions.

So what does this have to do with the GFC you wonder?  Well, precisely this – in times of financial hardship such as that experienced around the world since October 2007, government tax revenues inevitably start to drop as everyone starts to tighten their belts.  And while some of the drop in tax revenues is directly attributable to lower sales activity in domestic and worldwide markets there are other factors at work.  For example the tax office advises that in times of financial stress the propensity for taxpayers to start to ‘cut a few corners’, or perhaps more correctly, engage in illegal activities such as under reporting cash takings or inflating deductible expenditure claims.  Or perhaps it is as straightforward as getting behind in their tax payments during the year.

Against this background of potential client/ taxpayer behaviour, it would pay all taxpayers and tax agents to be mindful of both their obligations and the Tax Office’s hit lists for 2009-2010 in their tax return preparation activities in the coming season.  And it will be a fine balancing act for the tax office – how to collect the taxes outstanding, without putting taxpayers out of business in tough economic times; and also in circumstances where government expectations for tax revenues will be high as they seek to wind back the significant budget deficit over the coming years.

Smooth sailing!

CPA Australia’s corporate plan 2009 -2011 sets out its vision - for CPA Australia to be the global professional accountancy designation for strategic business leaders.  And while this is our organisation’s goal, how does it relate to your own career aspirations?  Assuming there is some symmetry between the two goals for many of you, how will you be able to fulfill the goal of being a strategic business leader if you are not keeping up with world economic developments?  The following may be of some assistance or at least get you thinking.

The last few days has seen the release of reports from both the World Bank , Global Development Finance - Charting a Global Recovery and the OECD with their latest Economic Outlook.  The release of these two reports closely follow last weeks IMF report timing-wise.  And while the reports actual forecast numbers may differ, their messages are substantially the same. That is, that economic conditions for 2009/2010 will remain difficult, with global economic recovery some time off, and slow when it does arrive.  The World Bank actually says the ‘timing and strength of the economic recovery remain highly uncertain’, while the OECD is slightly less negative, suggesting ‘the bottom of the recession is likely to be reached only in the second half of the current year’.

On a brighter note, however, all the reports acknowledge that the various government stimulus packages have played their role in ensuring things have not been much worse.  In fact, comparatively speaking, Australia’s own economic story is a good one.  The OECD concludes that it is the best performing country in the OECD with the smallest contraction of all countries in the OECD.  However this does not mean Australia’s future is without some pain, including rising unemployment.

The accounting profession and providing strategic business leadership is based on information, and making informed decisions, and, perhaps even more so in tough economic times, this includes brushing up on the available global economic data.  I encourage you all to keep up to date in this regard.  The real trick will be to not get stuck in the detail.  Consider the bigger picture, the trends and try to identify the opportunities the recovery may offer you or your business.

On a slightly different note, watch out this week for the July 2009 edition of INTHEBLACK magazine.  It includes a very interesting piece on developing a ‘killer resume’ – a very handy skill to have in tough economic times.

Smooth sailing!