Tax Value Method Fails To Convince Australian Reform Group

by Mary Swire, Tax-News.com, Hong Kong

14 May 2002

The proposed Tax Value Method (TVM) for calculating tax liabilities was dealt a final blow late last week, when the Business Coalition for Tax Reform rejected the model, arguing that it would complicate the Australian tax system rather than simplifying it.

Both the ATO and the Treasury have expressed enthusiasm for the TVM as a potentially simplified system, and the proposals have undergone four years of discussion and several drafts. Under the Tax Value Method, taxable income is calculated by subtracting expenses from receipts, taking into account the changing value of assets and subtracting changes in the value of liabilities.

In a statement released on Friday, the Chairman of the Business Coalition for Tax Reform, Mark Bayliss explained the tax reform coalition's reasons for rejecting the system:

'The members of the BTCR remain strongly committed to ongoing reforms to reduce the complexity, instability, uncertainty, and the costs of compliance of our current tax system,' he said. However, he added that 'the TVM is based on an economic concept that does not translate readily into an operational tax base'.

Other criticisms levelled at the alternative calculation method included the need for the identification of assets and liabilities which are not currently identified in all taxpayers' accounting records, difficulties in explaining the net income formula, risks to the integrity of the Australian tax base through opportunities for arbitrage around liabilities involving cross-border transactions, and the 'strong likelihood that the TVM will add uncertainty and complexity to the country's international tax regime.

Mr Bayliss concluded: 'The BCTR does not believe there has been a demonstration that the benefits of the TVM are likely to outweigh the costs, and the BCTR is not convinced that it would represent a significant imporovement over the present system.'

However, the coalition urged the tax authorities to continue to investigate possible alternatives to the current complex and burdensome tax regime, and in particular stressed the need for urgent reform of the international corporate tax system, in order to increase the country's competitiveness in the global arena.

Recommended