For anyone still bothering with this thread, I have done a little ‘research’ into some of the claims. Took me a while, which is why I’m a week behind in posting. This will extend over several posts, so please bear with me.

Putting party political mantra aside (I am non-partisan and would prefer people to come up with alternative solutions rather than regurgitate policies of their preferred parties), income is income and tax is tax.

Income is not income less operating costs LESS depreciation, amortisation, bad debts, interest on loans and anything else you care to mention BEFORE declaring taxable income.

So, referring to the government (any) as the government of the day, or GOD, we are best served by analyzing Individual’s claim that tax is generally unfair, rather than denouncing it out-of-hand. What we all do seem to agree on is that taxation is the only reliable source of govt. revenue and is therefore required at all levels.

His claim that companies are able to write off too many expenses in lieu of paying tax is actually warranted, but that is not the fault of the companies, it is the fault of the system. The same argument extends to personal taxation, but that is for another time.

So, assuming tax is necessary for society to function, how do we fairly distribute the burden? The biggest mistake the GOD made was to paint a target on the back of the mining companies, under the guise of giving everyone a ‘share in our mineral wealth’. With Gina now on a path to revenge and the economic implications largely unknown (but much guessed at!), the outlook is uncertain.

Now, if the GOD had done a bit of lateral thinking on this one and had taken into account that a) mining booms are historically cyclical and reliance on taxation boosts from a single sector of the market is a dangerous thing, and b) many of the mining companies are actually already paying more tax than other industries (see below), it could have come up with a much FAIRER and better solution

(Then again, perhaps the GOD is simply taking advantage of the current market to fill the empty coffers and doesn’t really give a toss about what happens in 5 years time, at which point another GOD may well be in place anyway!) ;)

FACT: There are very few people and companies who pay their fair share of tax. Again, not their fault. If the system is able to be rorted, it will be. If you trawl through endless annual reports and check the figures, only a handful of the big players in Australian business actually pay 30% tax, a figure which is only nominal anyway and is enough of a fuzzy rounded feel-good amount to beguile just about everyone.

For example, according to 2011 annual reports:
CBA paid 27% on its reported profit before tax (PBT), or 13% of revenue.
NAB paid a mere 22% of PBT or 4% of revenue.
Xstrata paid 26.2% of PBT or 6% of revenue.
Wesfarmers paid 28.9% of PBT or 1.4% of revenue.
BHP paid 27.5% of PBT or 13% of revenue.
Telstra paid 28.6% of PBT or a woeful 5.1% of revenue.
AMP paid no tax, posting instead a $3M tax credit which was 0.6% of its PBT or 0.04% of revenue.
On the other hand, Woodside paid 31% of PBT or 14% of revenue.
And what of Rio Tinto? Well, it may surprise some to learn that they paid 48.7% of PBT or 26.5% of revenue. Of course, this figure would also include mining royalties, accounting for its higher than average amount.

So, how is it that some companies (like some individuals) pay more tax than others, and hardly anyone pays their ‘fair share’? In the case of companies and business, here is the irony: companies must work very hard to REDUCE their PBT, in order to minimize tax payable and increase net profit margins (PAT). Make sense? Not really. Individuals do the same thing, by writing off expenses, salary-sacrificing and claiming everything allowable, so as to creep down into a lower ‘income’ tax bracket and thus escape paying their ‘fair share’.

Individual called for a tax on revenue, but others were right in claiming that under the current system, this would cripple all businesses. Also, there are legitimate costs in running a business (operating costs) which need to be deducted prior to declaring income.

But what if we changed the system? More importantly, what if we simplified it? Gasp! Something no government (or accountant) wants to do because that would call for easier public scrutiny, but there is much to be said for the old adage: Keep It Simple, Stupid.

Instead of a supposed 30% tax on profits (which few pay) we imposed a much smaller percentage (20%) on revenue after operating costs, (call it RT) and then a further 11% on super profits ( profit over $2bn)? Call this one SPT. This shields the smaller companies, takes a ‘fair share’ across the board from all the players (large and small) and provides a totally transparent framework.

Naturally, some companies would pay more tax, some less, as it would depend on what constitutes ‘operating costs’ and the nature of the business. For the sake of this example, the definition of OCs remains the same as stated in 2011 annual reports. All other costs incurred by the company outside of these OCs are the companies liability and are not deductible prior to the RT being levied.

If we do this, the following applies to 2011 figures:

CBA paid $2.637bn on $9.488bn PBT leaving $6.394bn PAT
New System: $2.692bn tax, leaving $6.355bn PAT

NAB paid $1.51bn tax on $6.7bn PBT, leaving $5.22bn PAT
New system: $2.025bn tax, leaving $4.67bn PAT

BHP paid $6.48bn tax (plus $828m royalties) on $31.26bn PBT leaving $23.95bn PAT.
New system: $8.81bn tax (+ royalties), leaving $22.37bn PAT

Telstra paid $1.31bn tax on $4.56bn PBT, leaving $3.25bn PAT
New system: $2.09bn tax, leaving $2.47bn PAT

Xstrata paid $2.22bn tax on $8.44bn PBT, leaving $6.23bn PAT
New system: $3.39bn tax, leaving $5.96bn PAT

Wesfarmers paid $784m tax on $2.71bn PBT leaving $1.92bn PAT
New system: $1.65bn tax, leaving $1.34 PAT (not subject to SPT as profit after RT and expenses below $2bn)

Woodside paid $0.66bn tax with PAT of $1.51bn
New system: $0.63bn tax, leaving $1.59bn PAT (again, no SPT)

Rio Tinto paid $6.44bn tax on $13.2bn PBT, leaving $6.77 PAT
New system: $$5.54 tax (+ royalties), leaving $7.56 PAT. Obviously, after royalties are paid, the PAT is reduced.

Now, if you add all these figures together, under old and new systems/tax paid and PAT, we find that while the tax burden on individual companies moves up or down, collectively PAT lessens by $1.5bn ($53,794m to $52,320m) but the tax revenue INCREASES by $2bn ($24,305m to $26,330m).

This is just a handful of companies and there is no doubt that some would profit by this sort of tax system than others, but it has clear advantages over existing system:
1. Transparency. Both governments, public, business and investors know up-front what they are in for.
2. Demands better business governance. That is, businesses will look to keeping OCs down to increase profit, rather than raising them.
3. It will put an end to the practice of writing off and claiming costs which should be borne by the company as a legitimate risk rather than by the government/taxpayer (ie, depreciation, amortisation and finance costs).
4. It spreads the burden of corporate tax rather than targeting a single sector, and is therefore less likely to be subject to swings of a particular market.
5. It simplifies an overly complicated system and savings by government on administration and accounting procedures could add millions or even billions to the coffers.
6. Companies could save hundreds of thousands, if not millions, in accounting fees. Accountants still necessary, but not to the extent and cost they are under the current system.

Thoughts? Anyone?

Next stop: Personal tax!

Added to say that I was going a little cross-eyed this morning, so missed a few 'bn's after some of the figures. Please assume they are there and that no company need declare a PAT of just $1.74!!