Current Income Tax Laws Unsustainable – Tax Board Chairman Tells Convention

Australia’s existing taxation laws were in desperate need of an overhaul, Board of Taxation Chairman, Mr Dick Warburton, said today.

Speaking on the role of the Board at the Taxation Institute of Australia (TIA) National Convention in Canberra, Mr Warburton said the original Income Assessment Act of 1936 contained a modest 81 pages. Over the past 65 years, through numerous “band aid” reforms, tax law has ballooned to some 4,500 pages.

Tax law based on the Tax Value Method (TVM) could reduce the current law by around 40 per cent, he said.

Likening current laws to the surface of a road containing potholes, cracks and bumps, Mr Warburton said it was pointless continually repairing the tarmac when the road’s structure and foundations caused the real problems. Better foundations to the road would improve the surface.

“Many of problems with income tax are because of the law’s concepts and themes. The best way to fix the law is by fixing the foundation.”

Mr Warburton said Australia could no longer afford to simply repair the “tarmac” of its taxation laws, but urgently needed a major overhaul of the tax system to maintain Australian business competitiveness in the global economy.

“Whether this reform is through the TVM is yet to be determined. But what is clear is the need for a fundamental restructuring and reform of current income tax law.

“Doing nothing is simply no longer a viable option.”

The current law was embedded in the realities of an era long gone, and was far too complex and voluminous relative to what it was supposed to achieve.

Mr Warburton said the TVM, if implemented properly, had the potential to underwrite the development of a stable, less ambiguous and more understandable income tax system, and in particular, a system more readily conducive to a manageable, ongoing development into the future.

He said the Board acknowledged there was clearly tax reform fatigue throughout the community.

“Therefore, it was understandable there will be a good deal of emotion and scepticism pervading about the prospects of such a major and fundamental reform that the TVM would represent.

“The Board asks the community to move beyond this – and to objectively assess all of the issues on their respective merits.

“The Board is looking to organisations such as the TIA, among others, to contribute their expertise to advancing the goal of achieving sensible, workable, lasting reforms that will ensure Australian’s income tax system meets the needs and challenges of globalisation in the 21st century,” Mr Warburton said.

Mr Warburton also outlined to the Convention other Board activities and priorities including the development of more effective tax law consultative and implementation processes; assisting in the development of the Government’s companies consolidation legislation; co-ordination of public consultation and the Board’s own advice on the Government’s proposals for the role and powers of the Inspector-General of Taxation; and assisting with the Government’s forthcoming review of Australia’s international taxation arrangements.