Liberal senator Andrew Bragg has noted that Australia will need to make changes to its tax approach to become as competitive as other top international centres of foreign investment like Singapore, Tokyo, Malaysia, and the United Kingdom.
When speaking to the Tax Institute this week, Bragg proposed three specific reforms that he believes will do much to improve international investment, immigration, and export. These reforms are seen as an opportunity to aid in the recovery of the economy, post-Covid-19.
The first suggestion is the creation of an Incremental Business Activity Regime (IBAR) concession. According to Bragg, this would allow businesses and financial institutions relocating to Australia to enjoy a concessional tax rate for their first seven years of operation. The rate would be the same as what they were paying in their country of origin. It would however be limited to a minimum of 12.5% or whatever minimum set by the OECD, should such concession be acceptable.
For Andrew Mills of the Tax Institute, this suggestion has clear benefits, but may not receive the expected support from the Organisation for Economic Co-operation and Development (OECD). He pointed out the OECD’s negative view of the Offshore Banking Units (OBU) regime.
Initially introduced to aid Australian financial services firms to better compete with providers from lower tax jurisdictions in the Asia-Pacific, OBUs have often been used to evade taxation. In March this year, the Australian government proposed the removal of OBU concessional tax rates from the 2023-24 income tax year and the removal of the interest withholding tax exemption. The government further proposed to close this regime to new entrants.
The second proposal from Bragg calls for the taxing of expatriates on a days-in-days-out basis. This would apply to senior staff and entrepreneurs that employ more than five people. It would allow for Australian tax to be chargeable only on the Australian sourced employment income. This move would help to attract new talent to the region and resolve the problem of tax penalties suffered by key personnel relocating to establish businesses in Australia. This proposal would see expatriates proportionally taxed just for the duration they worked onshore
He also proposed an end to the interest withholding tax (IWT) paid between Australian and international financial institutions. Bragg confirmed that this measure has been repeatedly recommended by various parliamentary committees with the conclusion being that the loss of an estimated $1 billion in revenue would be more than compensated by the “second-round impacts” on the economy.