There is always plenty of discussion regarding international tax avoidance. Multinational companies use transfer pricing amongst other methods to reduce and avoid paying taxes in the country where their goods or services are sold. I’m also hearing people calling for lower corporate taxes.

One way to deal with both issues would be to introduce a Foreign Exchange Tax. I see that China has introduced something similar although presently they have set the rate at 0%.
https://www.bloomberg.com/news/articles/2016-03-15/china-said-to-draft-rules-for-tobin-tax-on-currency-transactions

I’d like to see a 1% FET levied on every dollar that leaves the country. The revenue gained could be used to lower business tax by 2% and lower the 19% personal tax rate by 1%. It could be setup so that whenever we buy something or transfer funds the banks know if the money is being sent offshore and tax it there. Similar to how the BAD & FID taxes were applied by the banks.

Over the long term I’d like to see Corporate/Business tax at 10%, GST at 10%. I’d also like to see the lowest personal tax rate set at 10% and extend the upper threshold as far as possible c$80k. And this would be funded by a 10% Foreign Exchange Tax.

The net effect is to catch all transfer pricing arrangements and at the same time provide domestic businesses with a more level playing field.

Could this be implemented?

One,

The article indicates that the tax has not been introduced, it is only in a draft stage and has not even got basic approval, and is not likely to for the very reasons set forth in the article.

It makes transactions difficult, and stops the circulation of money, and hinders trade.

Such a tax, while intended against big companies, would in fact hurt families whose members live in different countries when they send their after-tax money to each other. It would also hurt international charities.

It's better to tax companies: incorporation is not a "right" and people, Australian or otherwise, always have the option of trading in their individual capacity.

If we don't like either companies in general or certain types of companies and their excessive profits, then all we need is to stop recognising them as separate legal entities and charge the individuals in question the same tax like everyone else.

China is a poor example: they are tyrants, they harass their own people and everyone else around them. So long as they occupy Tibet, no one should trade with them.

Individual tax rates can be lowered by moving the responsibility for all forms of social-support from government to public charities. It requires a cultural change and it doesn't mean that people will suddenly contribute less of their income to help their fellows and good causes, only that they will now do so voluntarily.

Shadow Minister

I don't see that a FET makes transactions difficult. It makes foreign transactions more expensive but at the same time consumers have more disposable income with which to buy foreign goods and services if they choose.

And there's no hindrance to trade at all. Businesses would be free to enter into the same trade arrangements as they do now.

Yuyutsu

The tax isn't just aimed at big companies. It's deliberately aimed at all funds exiting the country.

Families with members overseas would benefit somewhat from a lower income tax. Individuals and charities are also free to send goods and services overseas tax free. The tax would only apply to money.

I don't think anyone has a problem with the size of corporate profits. The issue is one of fairness and whether all entities pay their fair share of tax.

Dear One,

Talking about fairness, how is it fair that some people pay less tax because they call themselves a "company" while others would be fully taxed because they are just a "family"?

Families keep their money with different members at any given time, often because their country is considered at less risk of wars and the like - such money does not really belong to a particular member and would normally not be generated in Australia to begin with or even be associated with "income", but is simply passed down the generations as a security for those who may be in need or in trouble. I see nothing fair in taking away the money of someone who perhaps lived 100's of years ago, paid all the taxes and rather than spend the rest on themselves preferred to save it for their future generations. That their money happens to pass through Australia (which might not have even existed at the time) should have no consequences.

If there must be a tax, then income tax is the fairest!

Hi Yuyutsu

I agree. It doesn't seem fair that companies enjoy lower rates of tax than individuals and families. Which is why I'd like to see a FET used to equalise the tax for all entities. 10% all round sounds equitable to me.

We already have multiple taxes on money already taxed. eg. we pay the Goods and Services Tax on nearly all transactions with our income that we've already paid income tax on. We pay taxes on taxes sometimes such as Stamp Duty tax on the final sale price of a new home that has been charged GST.

My point though is that money leaving Australia doesn't help us as a nation. Particularly when it hasn't paid it's fair share of tax. A FET would not increase the tax burden overall but redistribute it more fairly.

Dear One,

The transaction-tax that you propose would arbitrary punish those who change their mind or whose circumstances change. Why should it matter how many times you move your money from one pocket to the other? You oppose money leaving Australia, but what about when the money came into Australia in the first place? It's not even Australian money: there are families overseas who entrust their savings, long after tax, to an Australian relative because Australia is considered safer, away from war-zones, then when they need their money back, you want to deny them part of it: what right have you to steal this money?

Also, what about foreigners who invest money in Australia? They already pay 10% tax on their Australian earnings, but you rather grab their savings capital just because it happens to be here. It's a certain recipe to make no one wanting to invest in Australia ever again and even for financially-able families never to come and live here, then only poor refugees will want to come.

BTW, neither the GST nor stamp-duties are a tax on money: they are taxes on the purchase of certain goods. While no tax can be fair, relatively speaking, income-tax is the fairest of them all. Lower rates? Sure, but this should come as a result of reducing expenditure.

I think that the overall level that we redistribute our income from the have's to the have-not's is currently adequate. The only problem about it is that it's mandatory, thus an immoral act of robbery, but once it is made voluntary, we should be happy proud to pay our taxes at their current levels.

One,

There are various reasons why this is a bad idea:

1 Anything that adds another level of red tape inhibits free trade, and often doesn't help the economy as well as becoming a de facto tariff on imports.
2 As many of our imports are machinery, these increase production costs and make our exports less competitive.
3 Most businesses and individuals can avoid this tax by simply having an overseas trading account, so the projected revenue is far far lower than proponents of the tax estimate.

The suggestion is kindergarten ideoligy.. Prices in au would go through the roof and render us into a fifth world.

Yuyutsu

I guess we'll have to agree to disagree. For the record though
- I'm not opposed to money leaving Australia
- A FET is not theft. It's paying for services and security that our govt provides
- a 20% tax on earnings is modest compared to the company and individual tax rates
- Stamp Duty is partially a tax on a tax in the case of a new property. The materials used to build the property are charged GST. And Stamp Duty is applied to the full sale price. A part of that sale price includes GST. Therefore you get a tax on a tax.
- Income tax can be reduced more significantly by some than others. It's not in my opinion the "fairest of them all". A fair tax is one that's very broad based and applicable to everyone with minimal opportunities for avoidance.

doog

Do you have any supporting evidence?

Shadow Minister

1. A FET would help the economy a lot by reducing other domestic taxes and giving local businesses a better opportunity to compete with foreign companies that pay less tax.

2. Importing machinery etc will cost 10% more. But this is more than offset by a 66% reduction in the company tax rate. ie. 30% down to 10%.

3a. Businesses could have overseas trading accounts but they will need to get funds into those accounts to start with and that will require moving money out of Australia.
3b. If they ever want to export their locally generated revenue they will need to shift money out of Australia and be taxed. Or they could export goods and services tax free and this would be a benefit to Australia due to the creation of local jobs and produce.

Shadow Minister

1. A FET would help the economy a lot by reducing other domestic taxes and giving local businesses a better opportunity to compete with foreign companies that pay less tax. No restrictions whatsoever to free trade.

2. Importing machinery etc will cost 10% more. But this is more than offset by a 66% reduction in the company tax rate. ie. 30% down to 10%.

3a. Businesses could have overseas trading accounts but they will need to get funds into those accounts to start with and that will require moving money out of Australia.
3b. If they ever want to export their locally generated revenue they will need to shift money out of Australia and be taxed. Or they could export goods and services tax free and this would be a benefit to Australia due to the creation of local jobs and produce.

One,

One of the points I was trying to make is that currency exchanges are not limited to Australia. Importer/exporters can do their exchanges in Singapore etc and not pay a cent of the FET. In fact the yield from this tax would probably not be much more than what the government spends in enforcing it, resulting in zero cuts in domestic tax.

PS, the external trading account would probably be in US$ with which they would be paid for exports and would pay for imports with virtually not FET paid.

Putting any restrictions on currency exchange inhibits free trade, and this would be viewed as a de facto import tariff by the WTO with treaty implications.

Thanks Shadow Minister

Yes businesses that both import and export can avoid a FET. No problem with that. Exports are good for the nation. But by far and away the majority of businesses either import or export and not both. And as such the importers would have a FET applied on the money leaving Australia. When I look at what we import both here
http://atlas.media.mit.edu/en/profile/country/aus/
and here
http://dfat.gov.au/trade/resources/trade-at-a-glance/Pages/top-goods-services.aspx
It appears that the biggest importers only import and don’t export. Companies such as BMW Australia and Apple Australia for example don’t export anything. So a FET would generate a very large amount of money. Even if we caught only a fraction of the $200 to $300 billion in annual imports we could reduce personal and business taxes by $2 or $10 billion or any other number. Some of that tax savings would be spent locally to boost the Australian economy. And all of this is before we start talking about the other hundreds of billions that leaves the country every year.

None of this would inhibit free trade and it’s not a restriction on currency exchange. A FET does not hinder anyone from sending money abroad. It simply adds a cost. It will make imports more expensive and to offset that people and businesses have more money to spend through lower taxes.

I agree that it could be seen as a de facto import tariff. But if it can be demonstrated that some trade agreements and treaties are not in Australia's best interest then perhaps they should be modified.

One

Seriously, clearly the concept of overseas transactions has gone over your head.

Here's a theoretical example

Importer A buys US$1m of forex from a bank in Singapore with a credit note.

Exporter B sells US1m of forex to the same bank in Singapore and cashes the credit note in Aus.

FET = $0.

And one cannot stop it without imposing forex controls and crippling the country.

Shadow Minister. There’s no need to be rude. You made no mention of international credit notes or how you see them as working in your previous posts.

Obviously everybody tries to minimise their tax burden in any way they legally can. And that’s why taxation law is amended and updated regularly. It’s to be expected.

As for international credit notes, they’re particularly easy to deal with. Clearly instruments like that would be used to avoid a legal obligation. That’s not tax minimisation but tax avoidance and can be legislated against. Is there a foreign currency transaction? Yes. Then the FET is applicable no matter what method is used to manipulate the financial transactions.

One,

The credit note is just one of many instruments that is used in a multitude of ways that can completely bypass any FET, just remember that:
1 - Australia cannot legislate against overseas transactions.
2 - Tax avoidance is entirely legal. Evasion is not.

Credit notes like hundreds of financial instruments have 100 000s of transactions every day mostly internal, in order to plug the many leaks in the tax, the FET would have to become so complex and intrusive that the cost of compliance and enforcement would outweigh its returns.

This tax and similar ones have been talked about for many decades, but no one has been silly enough to impose one.

Maybe you have a point SM. I'm no expert in financial transactions which is why my original post ended with "Could this be implemented?"

I do however still think that there must be non-complex method of taxing money that leaves the country.

Not one that works.

Yet ...

:-)