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Policy report

Corporate income taxation in Australia: theory, current practice and future policy directions

Corporate income tax Company tax Tax reform Taxation Australia

Since its introduction at the federal level more than a century ago, the corporate income tax has undergone reforms and modifications enacted in response to changes in economic conditions both domestic and global, the design of other tax policies and rates, and political and revenue pressures. These changes were implemented through the statutory tax rate, but also through the definition of the tax base, depreciation allowances, tax concessions, the treatment of dividends, capital gains and fringe benefits, and differentiation by company size, among others. Over time they have added complexity, created loopholes, and amplified inequities across companies and different income streams.

For decades, Australian taxation experts have maintained that from an economic welfare (or efficiency) standpoint, Australia stands to gain markedly from reform of one of its most damaged and damaging taxation regimes. Productivity growth has been weak since a peak during the mining boom in 2012 – 13 and the design of the current corporate income tax system contributes to that weakness. Productivity growth drives economic growth and improvements in living standards. By improving investment conditions and the attractiveness of investing in Australia, corporate tax reform can contribute to productivity improvements.

This report provides a framework for policy analysis of the corporate income tax system in Australia to broaden understanding of the topic and heighten policy debate. It achieves this by tackling three questions:

  1. What are the main problems (distortions) associated with the current corporate income tax system (chapter 2)?
  2. What policy options could be implemented in Australia to redress these problems (chapter 3)?
  3. What is the best policy option (chapter 4)?
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TTPI Policy Report 01-2022