The budget of every country is prepared and finalized by the Government of that country whether the country is developing one or the underdeveloped one. The budget explains all the specifications for the particular year and it defines the allocation of each and every expense to the respective department or revenues. For instance it lay down the cost of construction of Bridge under the Land and Estate department of that country (Fraser, 2016). At the end of the every year or particular reporting period, the actual results are compared with the budgeted figures and in case major deviations gets occurred then that specific matter will be looked into and the chances of its being reoccurred are removed and again proposals are made for the whole year and which after due discussion with the present members approve it as the budget.
The title of the report is Changes in Tax Rate for the budget year of 2016-17. It explains the major step or initiative taken by the Government of Australia regarding the corporate tax rate that has been reduced from 27.5% to 25% over the span of ten years. The change has been made for the general public and how the same have satisfied the societies.
The structure of the report will start from the executive summary detailing the aim of the study and how it has been flowed through out the study. Then introduction has been given detailing the main objectives and the structure of the report. Thereafter the budget for the year 2016-17 will be discussed and then detailed the advantages and disadvantages of reducing the corporate tax rate from 27.5% to 25% over the period of ten years and most importantly then have concluded with the study stating whether the policy so adopted is bad policy or good policy.
In order to facilitate the better understanding, the report has been differentiated under different and appropriate headings.
Bundget 2016 Main
Budget of anything whether it is a company, house or any Government plays very crucial role in the success of anything. It is so because budget describes how much have been spent out of the earnings and how much have been left and whether the budgeted figures are in matching with the actual figures. The difference of the same shall be reported by the checking authority or the authority which has prepared the budget. If the difference is very material then the respective authority shall amend the budget and shall keep the scope for any changes that can be mad in future.
Similarly the budget for whole of the country is prepared and presented the Government if the specific country. After the due approval from the Government or any other opposition member the budget will be declared. The budget will be effective from the date which is mentioned in the budget itself or in case it is not mentioned then from the date when it is published in the main document of the country specifying the constitution and other things.
With these considerations, the country has laid down the budget in the 2016-17. Budget has been classified into two major heads which includes the Revenue measures and the other one is Expenditure Measures. The government of Australia has introduced the system of Ten Year Enterprise Tax Plan which consists of series of plans. The main point which is of utmost importance in the Budget for the year regarding the ten year enterprise tax plan is given below (Morrison, 2016):
- Reducing the effect of double taxation by restricting the consolidated financial statements to not to consider the subsidiary liabilities while consolidating the financial statements and hence reduces the benefit of taxation.
- The rules relating to the taxation of financial arrangements have been changed. It has reduced the scope of the taxation rules, decreased the cost of compliances made by them and increases the certainty. The major key components have been described regarding this measure namely closer link to accounting, simple tax regime, simplified accrual rules and simplified calculation of capital gains or losses.
- Remove the door which has been closed earlier for the use of source of funds in the form of asset backed financing.
- The refund of excise will be made available to the domestic distilleries and the manufacturers of very less fermented drinks.
- The threshold limit for small business men has been raised from dollar 2 million to dollar 10 million which will take effect from 01-07-2017.
- The discount of tax rate has been extended to the business men who are at very small stage. The discount will vary for the period of ten years.
- Reducing the company tax rate to twenty five percent over the span of ten years.
- Amendment in the provision of Division 7A which lay down there will be clear rules and helps them in making the compliances including the mechanism where the small business men can correct and file the self correction in order to make the decision.
In this report the main focus is on the tax regime where the corporate income tax rate has been decreased to 25% over the period of ten years.
Advantages And Disadvantage – Ten Year Tax Plan
In the budget for the Financial Year 2016-17, it is mentioned that the corporate income tax rate will be reduced to 25% over the period of ten years. This is done by gradually increasing the threshold of the customers. The same will be effective from first of July two thousand and hundred sixteen. The increase in the threshold limit is in one way the benefit of the government in the view that the government will now have more and more reach to the corporate and more importantly now the tax base of the country will increase and on the other way the corporate will have the faith of getting it reduced. It is with this faith with the Government that the corporate have, the list showing the threshold limits along with the tax rate applicable to the corporate having that much threshold is given.
Till the completion of the year 2022-23, the company income tax rate will be the same as 27.5% and the threshold of turnover for the applicability of this will increase on year on year basis. The threshold limit of turnover has increased from $25 million in the year if 2017-18 to $1 billion in the year of 2022-23. After 2022-23, in the year of 2023-24 the tax rate will be 27% and shall be reduced by one percent per year till it reaches the value of 25% in the year 2026-27.
This ten year tax regime that has been proposed in budget and which has been duly approved by the Government has laid down that with the introduction of these types of changes in the corporate sector and there will be the chances of having the higher investment. Investors always remain in the view that their return shall be high and they are ready to invest on only those companies who are having the high turnover and who will provide the maximum net profit available to the equity shareholders (Freebairn, 2016). Net profit so calculated shall be Net Profit after Tax is used in identifying the Earnings per Share or Return of the shareholder. Net profit after tax so calculated or worked out will be high. It is because of the low tax component and high turnover which in turn provided the benefit to not only to the investors but also to the company in terms of reputations in the market clubbed with the high financial profile for the company. .
The second major advantage helps the corporate or individuals in saving their money and the time and it depicts from the working motive of this budget amendment that this will create the time value of money in real terms. As the tax rate is low the burden that previously were passed on to the customer are now being enjoyed by the customer. They will now treat the same as the tax rate is now at lower side. In this way money and time both have been saved for the customers and the corporate.
The third major advantage that the country will have that there will be zero chances of unemployment. It is because due to increase in the threshold limits and decrease in the tax rate gradually on the progressive basis, more and more companies will be opened and more and more employment opportunities will be given to the residents of Australia.
The last and major advantage that this policy has led is the increase in Gross Domestic Product rate of the country. Gross Domestic Product of the country implies that earning that the country has made internally without affecting the sale or purchase transactions or any income transactions from outside country (Nielson, 2016). It exhibits that the tax plan for ten years so introduced has created the rate of growth of Australia at much higher level.
The major disadvantage of this policy is that the cost to implement and manage this type of policy in the budget is very high. As per the financial budget for the year 2016-17, an amount of $2.7 billion will be expended and charged to revenue. Therefore, though the policy is very lucrative and beneficial but the cost of measures so taken is very high which has hampered the actual picture of the budget.
Thus, in spite of having the numerous advantages of having better transparency, work, and power to investor to freely invest and the increase in tax base of the country, the policy has suffered the disadvantage of high cost.
The budget plays a very important role in the development of any country. If the budget comes out with figures and facts which will not increase the financial capacity of the country but also make the residents of that country to feel free and happy without any pressure then the same budget is known as favorable budget otherwise the same budget will regarded as the unfavorable budget. The budget for the 2016-17 as pronounced by the Australia Government is very lucrative not only for the Government in having more and more revenues but also for the persons and companies including unincorporated by providing the increased threshold for taxability. The budget as pronounces has come up with the ten year perspectives for tax reduction for the companies including those which are still not incorporated and small companies. The policy has been made in such a way that the current tax rate of 27.5% is reduced to 25% over the period of ten years and with corresponding increase in the threshold limit for taxability of turnover. While describing the policy the advantages and disadvantages that the policy has gained and suffered respectively has been described and discussed in detail and the weight age of the advantages counts for more than the disadvantages and therefore, the policy so introduced by the Government of Australia has been fully accepted and is regarded as the Good Policy. Thus, to conclude the policy of ten year tax reduction has been powerful step taken by the Government.
Fraser J, (2016), “Opening Statement, Senate Economic Legislation Committee 2016-17 Budget
Estimates”, available on accessed on 04/05/2017.
Freebairn J, (2016), “How Company tax vs personal tax will boost the economy”, available on accessed on 04/05/2017.
Morrison S, (2016), “Budget 2016-17 Budget Measures” available on accessed on 04/05/2017.
Nielson L, (2016), “Corporate Tax rate reduction – large businesses”, available on accessed on 04/05/2017.