Company tax flat rate vs. individual tax brackets

[pinkboy]

Thanks, I'm quite aware of the difference between turnover and net profit.

In fact a turnover tax (at say 10%) instead of profit tax could be a better way of collecting taxes from business.

What do you think ?

Of course.....it depends.

Are you proposing abolishing all the other taxes on companies?

I would stand back and look at my own overall position and see if it were worthwhile for myself. If I was better off as a wage slave, then I would go back to PAYG and there would be less company profit going into the pool. Other businesses would do that too.

Drastically changing the company taxation system wont happen. My personal preference would probably raising the GST if we had to put up with higher taxes - that way User Pays.


pinkboy

 

[bellenuit]

In fact a turnover tax (at say 10%) instead of profit tax could be a better way of collecting taxes from business.

What do you think ?

That could be very counter productive as you are hitting companies when they can least afford it and going easy on them when they can.

For example, a company starting out may have no profit (possibly be running at a loss) and has turnover of $10M say. You hit them with a tax bill of $1M, when in reality they need everything they have to reinvest in the company. Another company, more mature, also has turnover of $10M, but is earning profit of $5M say. They can afford to pay $1.5M tax (30% of earnings), but they are only taxed $1M, just 20% of earnings. It would be too big a hurdle for startups to overcome.

On your original question, 30% is quite high for companies. They have to compete on the world stage and if our tax rates are too high, they will move elsewhere.

A progressive rate, though fine in theory, has lots of problems. For instance, take mergers or company takeovers. Let's take a simple example. Say the rate is 20% on earnings up to $10M and 40% on any earnings above $10M.

Say a company with earnings of $10M takes over or merges with a company with earnings of $5M. And, ignoring any capital issues, after the takeover or merger both companies perform exactly as before, except that they are now a single entity. Previously tax would have been $2M and $1M for the 2 companies, a total of $3M. After the takeover or merger, the tax take has increased to $4M. The combined company is till producing the same (combined) output, employs the same (combined) amount of people etc., but must now pay $1M more tax. This is a huge disincentive for companies trying to expand through mergers or acquisitions and it is obvious that the same disincentive would be experienced through organic growth.

 

[pinkboy]

That could be very counter productive as you are hitting companies when they can least afford it and going easy on them when they can.

For example, a company starting out may have no profit (possibly be running at a loss) and has turnover of $10M say. You hit them with a tax bill of $1M, when in reality they need everything they have to reinvest in the company. Another company, more mature, also has turnover of $10M, but is earning profit of $5M say. They can afford to pay $1.5M tax (30% of earnings), but they are only taxed $1M, just 20% of earnings. It would be too big a hurdle for startups to overcome.

On your original question, 30% is quite high for companies. They have to compete on the world stage and if our tax rates are too high, they will move elsewhere.

A progressive rate, though fine in theory, has lots of problems. For instance, take mergers or company takeovers. Let's take a simple example. Say the rate is 20% on earnings up to $10M and 40% on any earnings above $10M.

Say a company with earnings of $10M takes over or merges with a company with earnings of $5M. And, ignoring any capital issues, after the takeover or merger both companies perform exactly as before, except that they are now a single entity. Previously tax would have been $2M and $1M for the 2 companies, a total of $3M. After the takeover or merger, the tax take has increased to $4M. The combined company is till producing the same (combined) output, employs the same (combined) amount of people etc., but must now pay $1M more tax. This is a huge disincentive for companies trying to expand through mergers or acquisitions and it is obvious that the same disincentive would be experienced through organic growth.

And THAT is how you debunk a theory!

Kudos!


pinkboy

 

[Value Collector]

Thanks, I'm quite aware of the difference between turnover and net profit.

In fact a turnover tax (at say 10%) instead of profit tax could be a better way of collecting taxes from business.

What do you think ?

Woolworths makes about 3% of their turn over in profit, So they would have to raise prices.

a large portion of companies have profits of less than 10% of revenue, and others who might make margin over 10% would see they are paying 70% of their profit in tax.

not to mention the compounding factor as every company along the supply chain has to give up 10% of revenue,

It also completely ignores other deductions such as depreciation and interest payments to bond holders under your system a company owning a gas pipeline would be paying almost 100% of their profits in tax, and never beable to claim depreciation as their pipeline wastes away to nothing.

 

[Dettis]

Apart from the fact that most big companies pay less than 20% in tax anyway. How? You have quoted a 'flat rate of 30%' net of all business related deductions.

Hardly "taxing the guts" out of them is it ? And the poor consumer pays income tax As do companies....
gst As do companies.....
rates Are not a tax, but companies pay these too, either as they own their freehold, or generally as outgoings to their landlord
and expenses incurred in earning an income (fuel and transport Actually, you get a deduction for this.....
parking fees Cost of living expense.....
, child care) Another cost of living/earning expense......which is subsidised I might add. Also the vast majority paying childcare will be probably receiving some form of family benefit

for which they get no deductions at all.

Cry, cry for businesses. Are the Directors of companies not paying income taxes as well? More like a double dip which has unfortunately been a long term accepted burden of managing your own company.

In red above.
local bookkeeping services
yourbooksontime.com

6530 Trask Terrace
Alexandria, VA 22315
Telephone: 703-283-8298
pinkboy

if you have a good accountant, they solve this problem)

 

[Value Collector]

Why do companies pay a flat rate of tax while individuals have tax brackets ?

Surely a bracketed company tax based on say, ROI would be an effective super profits tax that would apply to all businesses, not just miners ?

[Sorry the title meant to say

Company tax flat rate vs individual tax brackets]

The answer to this original question is simply that once the companies profits are paid out to share holders they are taxed at each shareholders different tax bracket.

But while the company retains earnings and reinvests them, they just pay the flat rate, think of it as a way of encouraging companies to retain earnings and invest to grow the economy and Create jobs.

 

[mullokintyre]

From Visual Capitalist

Argentina and India have the highest corporate income tax rates, at 35% in the G20.

However, both countries have a progressive ladder for taxation, so this headline number may only apply to a smaller subset of firms. For foreign companies with a “permanent entity” in India, the rate climbs past 40%.

Mick

 

[Dona Ferentes]

and a Happy EoFY to everyone.

 

[Bellcose]

You could have waited until 11:59:59 pm to post that.

 

[Dona Ferentes]

Stage-three tax cuts​

All Australian taxpayers get a tax cut. Low and middle income-earners in the bottom two brackets get a cut from tax rates of 19% and 32.5% to 16% and 30% respectively. The 30% tax bracket will cover those earning up to $135,000 – previously $120,000. The second-highest tax bracket – at 37% – will include income up to $190,000, a $10,000 increase.

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Minimum wage increases​

The minimum and award wages will increase by 3.75%. It means that those on minimum wage will earn $24.10 per hour (previously $23.23), or $915.90 per week if they work full time.

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Superannuation increase​

The minimum amount employers must contribute to their employees’ super has risen by 0.5% – from 11% to 11.5%. The before and after tax contribution caps have also increased – they are $30,000 and $120,000 respectively, up from $27,500 and $110,000 in 2023-24.

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Paid parental leave​

Parents will get 10 more days a year of paid parental leave, with parents now eligible for 110 days a year. The rate of paid parental leave will also increase, in line with the minimum wage, to $915.91 a week.

Centrelink​

Recipients of the age pension, a disability support pension and carer payments will be able to earn more before their payments are reduced. Singles can now earn $212 a fortnight (previously $204) and couples can earn $372 (previously $360). About 1.3 millionhouseholds receiving the family tax benefit and other payments including the newborn supplement and multiple birth allowance will receive higher benefits due to indexation. There will also be increases to multiple birth allowance, newborn supplement, stillborn baby payment and essential medical equipment payments

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