MARCH 2016
A policy paper commissioned
by the Minerals Council of Australia
Growing the Australian economy
with a competitive company tax
POLICY PAPER
Jack Mintz, Philip Bazel, Duanjie Chen
Growing the Australian economy
with a competitive company tax
Jack M. Mintz is the President’s Fellow at the University of
Calgary’s School of Public Policy focusing on tax, urban and
financial market regulatory policy programs. Dr. Mintz was
appointed the Palmer Chair and founding Director of the
School of Public Policy from 1 January 2008 to 30 June 2015.
He was recently awarded the Order of Canada for his fiscal
advice given to governments internationally and at home. This
includes leading a study of corporate tax reform in Canada as
Chair of the Federal Government’s Technical Committee on
Business Taxation in 1996 and 1997.
Philip Bazel is a Research Associate at the School of Public
Policy, University of Calgary. Philip has also played a role in
a number of projects consulting for both governments and
private organisations in the area of taxation and public finance.
Duanjie Chen is a Research Fellow at the School of Public
Policy, University of Calgary. Dr. Chen is a consultant to
numerous international organisations and various government,
business and non-governmental organisations in Canada. She
has published widely in the field of public finance.
The Minerals Council of Australia is the peak national body
representing Australia’s exploration, mining and minerals
processing industry, nationally and internationally, in its
contribution to sustainable economic, and social development.
This publication is part of the overall program of the MCA, as
endorsed by its Board of Directors, but does not necessarily
reflect the views of individual members of the Board.
Minerals Council of Australia
Level 3, 44 Sydney Ave, Forrest ACT 2603
(PO Box 4497, Kingston ACT Australia 2604)
P. + 61 2 6233 0600 | F. + 61 2 6233 0699
www.minerals.org.au | [email protected]
Copyright © 2016 Minerals Council of Australia.
All rights reserved. Apart from any use permitted under the
Copyright Act 1968 and subsequent amendments, no part
of this publication may be reproduced, stored in a retrieval
system or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise, without the
prior written permission of the publisher and copyright holders.
Contents
Overview
4
1Introduction
6
2 Company income taxation: myths and realities
8
3 Australia’s company tax structure
12
4 Measuring tax competitiveness
15
5 Transfer taxes: new evidence 20
6 Mining tax and royalty comparisons
23
7 Reforms Australia could consider 25
8 Conclusion 27
Data appendix
28
Endnotes
32
Charts and tables
Chart 1 Private sector investment as a share of GDP
10
Chart 2 General company income tax rates
13
Chart 3 Marginal effective tax rates, Australia and country groupings
17
Chart 4 Marginal effective tax rates, by country
18
Chart 5 Marginal effective tax rates, including stamp duties and other transfer taxes
21
Table 1 General company income tax rates
12
Table 2 Marginal effective tax rates, Australia and country groupings
16
Table 3 Marginal effective tax rates, with and without transfer taxes
22
Table 4 Mining marginal effective tax and royalty rates (iron ore)
24
Table A1
General company income tax rates
28
Table A2
Marginal effective tax rates, without transfer taxes
29
Table A3
Corporate income tax and mining royalty and rent tax for metallic mining
30
Overview
While many economies have
been reducing company income
tax rates, Australia has become
stuck in quicksand watching
others pass by.
Australia has gone from the middle of the
pack a decade ago to now imposing one of
the highest tax burdens on capital investment.
Among 34 OECD countries, Australia has
slid from having the 10th highest effective tax
rate on new investments in the non-resources
sector in 2005 to the 4th highest in 2015.
Mining is also more heavily taxed in Australia
compared with major comparators.
A key reason for Australia’s relatively high
tax burden on investments is its high statutory
company income tax rate of 30 per cent. In
2015, this was the 6th highest company tax rate
in the OECD (compared to the 14th highest
in 2005) and about five points higher than
the 25.3 per cent OECD average statutory
rate. While Australia has maintained the same
company tax rate of 30 per cent this past
decade, other countries have been reducing
capital taxation to encourage economic growth.
This paper provides a comparison of
Australia’s company tax system with other
major countries in the G20, the OECD and
BRICS (Brazil, Russia, India, China and South
Africa), as well as a few others with significant
mining operations. The analysis is based on
the Marginal Effective Tax Rate (METR) on
capital, which is the tax paid as a proportion
of pre-tax profit for new investments that earn
sufficient profits to cover economic costs of
project investments (marginal projects).
The METR is a good indicator of how taxes
affect investment.
• The ‘base model’ in the study (which
excludes transfer taxes such as stamp
duties) shows Australia’s tax burden on nonresources capital investment of 25.7 per cent
has not changed between 2005 and 2015
• Across 34 OECD countries, the average
METR has fallen from 21.4 per cent to
17.7 per cent over this period
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Minerals Council of Australia
• For all 45 countries surveyed, the average
METR has fallen from 23.5 per cent to
19.6 per cent over the decade
Studies focusing on foreign direct investment
show an even bigger impact, with foreign
direct investment flows growing as much as
2.5 per cent for each one-point reduction in the
corporate income tax rate. The company tax
hurts growth by deterring investment decisions
and the adoption of new technologies.
• Between 2005 and 2015, Australia has
gone from having the 10th highest METR
among 34 OECD countries to the 4th
highest; for all 45 countries, Australia has
gone from having the 16th highest METR
to the 8th highest
Australia should reduce the
company tax rate to at least
25 per cent. A braver reform
would be to consider a rate
closer to 20 per cent, like
in the United Kingdom.
• An ‘alternate model’ developed for this
paper (which includes transfer taxes)
calculates Australia’s METR in 2015 at
28.9 per cent; it similarly shows Australia
to have the 4th highest tax burden on
capital investment among 34 OECD
countries and the 8th highest among
the 45 countries surveyed
• A comparison of mining fiscal regimes
focusing on iron ore shows that Australia
at 37 per cent has the 3rd highest Marginal
Effective Tax and Royalty Rate (METRR) of
nine countries examined. Only Zambia and
South Africa have higher fiscal burdens.
Australia should reduce the company tax
rate to at least 25 per cent. A braver reform
would be to consider a rate closer to 20 per
cent (like in the United Kingdom).
Certain myths pervade discussion about
company taxes. One is that company taxes
are paid by the rich and powerful. A survey of
recent studies shows that at least two-thirds
of company income tax is shifted onto labour
through higher consumer prices, wage cuts
and layoffs. Company tax is thus a clumsy
instrument to achieve progressivity since it is
not the company that bears the tax. Fairness
is best achieved through the personal
income tax system.
It is sometimes claimed that investment
decisions are not sensitive to company taxes.
This is a second myth. A conservative estimate
is that each 10 per cent increase in the cost
of capital (adjusted for the METR) causes a
long-run decline of 7 per cent in a country’s
capital stock.
Growing the Australian economy with a competitive company tax
5
1 Introduction
Australia has had a rich history of company tax reform analysis in the
past two decades, including the 1999 Ralph and 2010 Henry reports
on tax reform.1
Both recommended the traditional approach
found in many countries to reduce company
tax rates and broaden the tax base, in part
to provide a more neutral tax treatment of
business activities.
The Ralph Report’s recommendations to
lower the company income tax rate from
36 to 30 per cent accompanied by several
revenue-raising measures were adopted
upon its release. On the other hand, the
Henry Report, which recommended a
further reduction in the company tax rate
from 30 per cent to 25 per cent, failed to be
implemented. Most industrialised countries
have been reducing company income tax
rates in the past decade and yet Australia
has become stuck in the quicksand,
watching others pass by.
As this paper shows, Australia’s global
tax competitiveness has already slipped
markedly. In non-resource sectors, Australia
had the 4th highest effective tax rate on new
investments in 2015 amongst 34 OECD
countries, compared to the 10th highest in
2005. Meanwhile, mining is more heavily
taxed in Australia compared to most
major comparators. One of the reasons
for Australia’s relatively high tax burden on
investments is that it has a high statutory
company income tax rate of 30 per cent,
about five points higher than the 25.3 per
cent average OECD statutory tax rate.
Is this a significant economic issue?
Australia with its strong rule of law, political
stability, good infrastructure and rich
resource endowment has many economic
6
Minerals Council of Australia
advantages attractive to business
investment. It is clear nonetheless that
other resource-rich countries such Canada,
Finland, New Zealand, Norway and Sweden
have similar economic advantages but tax
capital investment less heavily than Australia.
The consequence of a relatively high
tax burden on capital is more than just
to discourage investment. Less capital
investment results in a slower adoption
of new technologies embodied in capital,
impeding economic growth. It means
that businesses are less competitive to
export their products to world markets and
compete with cost-competitive imports
coming into Australia. This, in turn, can hurt
workers who are unable to receive better
compensation when their employer cannot
compete and grow production. With evolving
technologies and global supply chains,
businesses operating in a jurisdiction
have to be in a position to attract
international capital.
The Australian government recognises the
importance of company tax reform as a
driver of productivity growth.2 Stamp duties
and company taxes impose the highest
economic costs on Australia compared to
other taxes.3 Thus, a revenue-neutral switch
from company taxes and stamp duties to
other taxes such as the Goods and Services
Tax (GST) would raise economic incomes.
Other tax reforms that even the playingfield among businesses (such as removing
differential company tax rates for small and
large firms) would also lead to higher GDP.
Given Australia’s tax competitiveness
disadvantage, it should follow the Henry Report
advice and reduce the company tax rate to at
least 25 per cent, if not further such as 20 per
cent in the United Kingdom. This would lead
to some shortfall in revenue since Australia
has a relatively broad company tax base with
limited opportunities to broaden the tax base
to achieve a more neutral application of tax
burdens across business activities. Instead, a
rebalancing of tax revenue sources to rely on
less economically costly taxes or scaling back
some public expenditures would be needed.
This paper provides a comparison of
Australia’s company tax system with other
major countries in the G20, the OECD and
BRICS (Brazil, Russia, India, China and South
Africa), as well as a few others with significant
mining operations. The analysis is based on
the Marginal Effective Tax Rate, which is the tax
paid as a proportion of pre-tax profitability for
new investments that earn sufficient profits to
cover economic costs of project investments
(marginal projects).4
manufacturing and service industries (the latter
including construction, trade, transportation,
communications, utilities and other services),
excluding mining and oil and gas. Given the
importance of the mining industry in Australia,
we also include a comparison with selected
countries of Australia’s mining fiscal regime,
including royalties, focusing on iron ore.
The outline of the paper is as follows. In
the next section, the rationale for company
tax reform is reviewed. This is followed by
a discussion of the main features of the
Australian tax system, which is the basis for
the subsequent competitiveness analysis. The
relevance of the tax competitiveness measure
used in this report is then explained. Australia
is compared with 44 other countries for
manufacturing and services and with eight
other countries for mining taxes and royalties.
The paper’s final section discusses some
options for company tax reform in Australia with
the aim of improving the investment climate.
We include in our measure of tax
competitiveness the company income tax
(tax rate, depreciation and inventory cost
allowances and other relevant provisions),
capital taxes (levies on assets or equity)
and sales taxes on capital purchases for
the 2005-15 period. A new extension in this
paper is the inclusion of transfer taxes (real
estate, securities and financial transaction
taxes) for 2015.
Drawing on earlier analysis, the 45-country
comparison in this paper focuses on
Growing the Australian economy with a competitive company tax
7
2 Company
income taxation:
myths and realities
Company taxation is a complex matter that is not easily understood by
the general public. Political debate becomes simplified often resulting
in several myths about what a company tax might achieve.
These myths revolve around such questions
as: who ultimately bears the company tax?
and does company taxation affect investment?
Myth 1:
Company taxes are progressive,
falling on high income households
It is not uncommon to hear two extreme
views about company taxation. One is that
companies should be taxed, perhaps even
more heavily than at present, since they
are owned by the rich and powerful. The
other is that company income tax should be
abolished altogether since people should
pay taxes, not businesses. Neither of these
two views is well-informed since they are
built on myth rather than reality.
While the legal incidence of company
tax falls on the corporation, its economic
incidence is a quite different matter. Taxes
paid by companies are ultimately paid by
people whether through higher consumer
prices, lower wages or lower returns paid
to owners. While the public may hold that
taxing corporations improves fairness by
making the rich pay more, recent economic
analysis confirms that this is unlikely to
be the case.
The key point is that the lion’s share of
company tax, including in Australia, is
paid by large companies that have access
to international markets for financing
their investments. Company taxes paid
by the firm cannot be easily shifted back
to domestic or non-resident owners
by reducing returns since investors will
shift their funds to other opportunities in
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Minerals Council of Australia
international markets where returns are
higher. Thus, company tax becomes a cost
that is recovered by the company by raising
prices on consumers or by reducing wage
payments to labour, including layoffs, or
rents paid to landowners.
The world is much more complicated
than the assumption of a ‘small open
economy’ would imply. Some studies have
shown that investors have a ‘home bias’ to
invest in domestic securities resulting from
institutional or informational barriers to trade.5
If this is the case, corporate taxes could
be borne at least in part by capital owners.
Certainly, smaller corporations have little or
no access to international markets so that
home bias is most important in these cases.
Further, when company taxes are increased
(reduced), they can impact on the old capital
values leading to windfall losses (gains) to
owners. This point has been particularly
important in Australian discussions of
company tax reform.6 However, the windfall
loss (gain) will be blunted by the tax base
moving to (from) the personal sector or
other jurisdictions in response.
Estimates of the incidence of company taxes
in recent studies are revealing:
• Arnold Harberger shows in a simulation
model for an open economy that labour
bears almost 96 per cent of the burden of
company tax.7 In a similar vein, Randolph
shows that labour bears 70 per cent with
a fixed world capital stock.8
• Arulampalam et al. estimate that a
$1 increase in the tax liability leads to a
64 cents reduction in total compensation
in the short run, and a 49 cents reduction
in the long run.9
• Hassett and Mathur find that company tax
rates affect wage levels across countries
with a 1 per cent increase in corporate tax
rates leading to nearly a 0.5 per cent fall in
wage rates.10
• Liu and Altshuler estimate that a $1 increase
in corporate tax revenue decreases wages
by approximately $0.60.11
• An Australian Treasury paper estimates that
one-third of company tax falls on owners
and the rest on workers in the long run.12
Thus, at least two-thirds of company income tax
is shifted onto labour through higher consumer
prices (thereby reducing the purchasing power
of money), wage cuts or layoffs. When this
occurs, the effect is to make company income
tax regressive. To the extent that company tax
reduces the return on capital, owners include
not just high-income earners but also workers
through pension plans and other intermediaries.
Further, in the case of small companies, a
significant share of the company tax falls on the
owner who derives not just compensation from
capital investment but also labour effort from
profits derived as dividends and capital gains.
Overall, a reduction in company taxes will lead
to a more progressive tax system to the extent
that company tax is shifted forward in higher
prices or results in lower wage income paid to
workers. All this is to say that company tax is
a clumsy instrument to achieve progressivity
since it is not the company that bears the tax.
Fairness is best achieved through the personal
income tax system, which can be individualised
according to personal circumstances.
Overall, a reduction in
company taxes will lead
to a more progressive tax
system to the extent that
company tax is shifted
forward in higher prices
or results in lower wage
income paid to workers.
All this is to say that
company tax is a clumsy
instrument to achieve
progressivity since it is
not the company that
bears the tax.
Growing the Australian economy with a competitive company tax
9
Chart 1
Private sector investment as a share of GDP
Various countries, 2005 -14 (%)
25
Private capital formation as a share of GDP (%)
23
21
19
Australia
Czech
Republic
Denmark
17
15
13
Estonia
France
11
Germany
Italy
9
Netherlands
Slovenia*
7
Spain*
United States
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
5
* 2013 is the most recent data available. 2014 data for Australia is an estimate based on Australian Bureau of Statistics
gross capital formation data which has been adjusted to bring the 2014 data point in line with OECD metadata on capital
accumulation by activity.
Data sourced from OECD metadata capital formation by activity ISIC rev4. Private approximation constructed from ISIC
categories VA0: Agriculture, forestry and fishing, VB: Mining and quarrying, VC: Manufacturing, VD: Electricity, gas, steam
and air conditioning supply, VF: Construction, VG: Wholesale and retail trade, repair of motor vehicles and motorcycles, VH:
Transportation and storage, VI: Accommodation and food service activities, VJ: Information and communication, VK: Financial
and insurance activities, VM: Professional, scientific and technical activities, VN: Administrative and support service activities,
VR: Arts, entertainment and recreation. This aggregation is a simplification as data does not allow the breakdown of public
vs private contributions to capital formation.
Myth 2:
Company investment decisions
are not affected by taxation
At times, it is suggested that company taxes
do not affect company investment decisions
even though most companies today decide on
investment plans according to their after-tax
profitability. An erroneous view, for example,
is to argue that investment was higher in the
1950s when company rates were close to 60 per
cent and not as strong when company taxes
were reduced in later years. Indeed, private
10
Minerals Council of Australia
investment trends are not especially helpful
in understanding the role of taxation. This is
especially true since the 2008-09 global financial
crisis (GFC) recession, which took the wind out
of capital investment in many countries.
As shown in Chart 1, Australia has had strong
private sector investment since the turn of
the century, rising from 13 per cent of GDP
in 2000 to an average of around 17 per cent
in recent years, in large part due to strong
sectoral growth in mining investment. This was
substantially higher than economies such as
Germany and United States largely reflecting
the importance of the resources industry
in Australia (the share of non-residential
construction to total private sector investment
has been around 60 per cent in Australia
compared to roughly 20 per cent in Germany
and the United States). With the GFC, private
investment in Australia declined to 15 per cent
of GDP in 2010 but then rose again to a new
peak of more than 18 per cent of GDP in 2013.
More recently, however, private investment
has declined following the sharp fall in
commodity prices.
In this environment, the tax system will play an
important role in helping grow the economy.
Needless to say, taxes are not the only factor
that influences investment. A full analysis needs
to look at all factors affecting investment, of
which the tax burden is one. These factors
include aggregate demand, financing costs,
transparency and inflation. Nonetheless,
economists would generally agree that private
investment is sensitive to taxation.
A conservative estimate is that each 10 per cent
increase in the cost of capital (adjusted for the
METR, which adds to the cost of capital) causes
a long-run decline of 7 per cent in a country’s
capital stock. Studies focusing on foreign
direct investment show an even bigger impact,
with foreign direct investment flows growing
as much as 2.5 per cent for each one-point
reduction in the corporate income tax rate.13
With reduced investment, economies grow
less quickly since machines, structures and
intangible assets (such as research and
exploration) are needed to produce goods and
services in later years. Some taxes particularly
harm economic growth by distorting work,
investment and risk-taking decisions resulting
in the economy’s resources not being put to
their most profitable use. This economic cost
is the ‘deadweight loss’ of taxation – the loss
of consumption or production caused by tax
distortions. Adding this deadweight loss to the
cost of raising a dollar of taxes is known as the
marginal cost of taxation.
profit-shifting, capital mobility and economic
rents.14 For company income tax, the marginal
cost of taxation was estimated to be $1.50 (in
the base case) and for stamp duties, $1.72. On
the other hand, the marginal cost of taxation
for the GST is $1.19 and for land and municipal
taxes the marginal cost is less than one dollar.
Summary
From the above discussion, two points emerge.
First, company tax can be regressive with
workers and low-income Australians impacted
most. Second, company tax hurts growth
by deterring investment decisions and the
adoption of new technologies.
None of this implies that company tax should
be abolished. The role of company taxation is
to shore up the personal income tax system
so as to ensure that Australians cannot avoid
personal taxation by sheltering income in
untaxed companies. As a ‘source-based’ levy,
company tax also serves as a withholding tax
on foreign investors who, in some jurisdictions
like China and the United States, credit
company taxes against tax liabilities owing to
their home governments. Further, company tax
often operates as a surrogate user fee for public
services like infrastructure that help businesses
earn more profits.
In short, a balance is needed between these
objectives and the economic effects of
company taxes on wealth generation and
the broader economy.
In a comprehensive Australian study, it was
found that two taxes – company income tax and
stamp duty – impose the highest marginal costs
of taxation after taking into account various
measures of capital-labour substitutability,
Growing the Australian economy with a competitive company tax
11
3 Australia’s company tax structure
To assess the competitiveness of Australia’s company tax structure, a
brief review of key aspects relevant to the analysis is useful. Specifically,
this analysis has a focus on company income tax and its provisions,
stamp duties and other taxes relevant to capital investment decisions.
Company tax is levied at a 30 per cent rate
on profits. A new rate of 28.5 per cent for
small business with less than $2 million
in turnover has been introduced for the
fiscal year 2015-16. Depreciation costs are
generally based on economic lives (such as
40 years for non-residential buildings) and
the original cost of purchasing the asset.15
Inventory costs are valued according to
several methodologies (such as first-in-firstout and average cost) except for the last-infirst-out approach, which is most favourable
to a company when prices are rising. Interest
expenses are generally deductible, although
thin-capitalisation limits are imposed (given
the debt/asset ratio of 40 per cent used in this
paper, these interest limitations are irrelevant).
Overall, Australia has a relatively ‘clean’
corporate tax system with little accelerated
depreciation or investment tax credits.
Where it does have tax incentives or
preferences, they are focused on knowledgebuilding activities – such as research and
development (R&D) and exploration – that
create spillovers for other businesses that
learn from the discovery made by a firm.
Companies that innovate or explore do not
Table 1
Australia provides tax incentives for R&D
with a tax credit ranging from 30 to 45 per
cent of expenditures (R&D expenditures,
which are relatively small, are not included
in our 45-country comparison since many
governments also provide grants rather
than tax support). A few assets are
expensed including those related to
environmental protection, landcare,
exploration and prospecting for minerals
and mine site rehabilitation.
Australia’s company tax rate is relatively
high by OECD standards. Table 1 compares
the company tax rate in Australia to ‘allin’ statutory company income tax rates
(including subnational governments and
special surtaxes) for the G20, the OECD
and a larger group of 45 countries surveyed
for this paper. Chart 2 provides statutory
company income tax rates for 2005 and
2015 by country (see Table A1 in the
Appendix for individual country statistics).
General company income tax rates
Australia and country groupings, 2005 -15 (%)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Australia
30.0
30.0
30.0
30.0
30.0
30.0
30.0
30.0
30.0
30.0
30.0
G20*
31.5
31.0
30.9
29.9
29.5
29.3
29.1
29.1
28.9
28.8
28.6
28.2
27.7
27.2
26.1
25.9
25.9
25.8
25.7
25.7
25.5
25.3
28.6
28.2
27.8
27.0
26.7
26.6
26.5
26.5
26.5
26.4
26.2
OECD
*
45 Country
*
* Simple average
12
fully capture the returns from research and
exploration and therefore tend to underinvest
in the activity. Many countries often provide
tax preferences for research and exploration
to encourage these types of activities.
Minerals Council of Australia
Chart 2
General company income tax rates
By country, 2005 and 2015 (%)
2005
2015
Combined company income tax
% 0 510152025303540
United States
France
Zambia
Argentina
India
Colombia
Brazil
Belgium
Japan
Italy
Australia
Mexico
Luxembourg
Germany
Portugal
Greece
G20*
South Africa
Peru
New Zealand
Spain
Norway
Canada
Israel
All 45 countries*
OECD*
Austria
Netherlands
Indonesia
China
Korea, Republic
Slovak Republic
Denmark
Chile
Sweden
Finland
United Kingdom
Turkey
Saudi Arabia
Russia
Iceland
Estonia
Hungary
Poland
Czech Republic
Switzerland
Slovenia
Ireland
* Simple average
Growing the Australian economy with a competitive company tax
13
While Australia has maintained the same
company income tax rate of 30 per cent this
past decade, in general global company
income tax rates have declined. In 2005,
Australia’s company income tax rate was the
14th highest of 34 OECD countries and the 18th
highest among 45 countries surveyed in this
paper. By 2015, Australia had the 6th highest
company income tax rate of OECD countries
and the 11th highest among 45 countries.
There has been a decline in the general
company income tax rate across all country
groupings. The average OECD company tax
rate has fallen from 28.2 to 25.3 per cent and
is now almost 5 points less than Australia’s
company tax rate. Most notable has been the
decline in the UK rate from 30 to 20 per cent
(further reductions to 17 per cent are planned
in the next three years). Canada has reduced
its company income tax rate from 34.2 per cent
in 2005 to 26.6 per cent in 2015. Overall, the
average company income tax rate across the
45 countries included in this study has declined
2.4 percentage points.16
Besides company income tax, Australian
firms pay some other taxes on capital
investments. Stamp duties on the transfer of
certain transactions are applied at the state
level, including on real estate, motor vehicles,
insurance, mortgages and certain shares.
For the purposes of this study, the transfer
tax on real estate assets that varies by size
of the investment is significant in Australia.
For marginal investments taken on by large
companies, the average state-administered
stamp duty on real estate transfers is estimated
to be 5.6 per cent. Land taxes on unimproved
capital values are also assessed at the local
level (such taxes are ignored in our multicountry comparison). Special tax provisions
and royalties apply to mining, which is
discussed in a later section.
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Minerals Council of Australia
In 2005, Australia’s
company income tax rate
was the 14th highest of
34 OECD countries and
the 18th highest among
45 countries surveyed
in this paper. By 2015,
Australia had the 6th
highest company income
tax rate of OECD countries
and the 11th highest
among 45 countries.
4 Measuring tax competitiveness
Public policy analysts commonly use the Marginal Effective Tax Rate
(METR) to measure how the tax structure affects capital investment.
This concept is based on a simple proposition that profit-maximising
businesses undertake investment until the rate of return (net of
depreciation, risk and taxes) on new projects is equal to its cost of
capital (the weighted average of borrowing and equity financing rates).
If the net-of-tax rate of return is more than
financing costs, it is wise to take on the
project to increase profits. If the adjusted
rate of return is less than capital costs, the
investment project will be rejected.
Thus, a business invests in capital to earn
profits until no further profit can be earned
at the margin; in other words, the marginal
investment earns just sufficient income to
cover capital costs. The METR is calculated
as the annualised amount of taxes paid as a
share of the pre-tax rate of return on capital.
If the tax burden rises, the business will find
at a certain point that after-tax returns are
lower than financing costs. The business will
then cut back investment, approving only
projects with a sufficiently high rate of return
on capital to cover both financing costs and
taxes. In other words, the higher the METR,
the lower the investment, and vice versa,
making the METR a good indicator of how
taxes affect investment.
In this evaluation, the METR includes
corporate income taxes, sales taxes on
capital purchases and other capital-related
taxes such as transfer taxes and asset-based
or capital taxes. Municipal property taxes are
excluded since effective property tax rates
cannot easily be compared across industries
or countries. To measure municipal property
tax rates accurately, the benefit of municipal
services should be subtracted from property
tax payments to determine the effective rate.
The tax competitiveness analysis of 45
countries focusses on manufacturing and
services. All countries are assumed to
have the same capital structure (buildings,
land, machinery and inventories) based
on Canadian sectoral weights. Nominal
interest, required equity returns and inflation
rates vary by country with the real cost of
debt and equity finance being the same
across countries with the marginal investor
being indifferent between bonds and equity
securities once adjusting for personal taxes
and risk.
The analysis for the moment thus excludes
the important resource sector in Australia,
which faces complex tax and royalty
provisions. Mining sector comparisons are
provided for iron ore in a later section.
How Does Australia Fare?
Leaving aside transfer taxes (discussed
below), we compare the METR for Australia
with 44 other countries. As shown in Table
2 and Chart 3, Australia has moved from
the middle of the pack in 2005 to a situation
in 2015 where it has one of the highest
tax burdens on investment among OECD
countries, as well as among the larger
sample of 45 countries.
Growing the Australian economy with a competitive company tax
15
Table 2
Marginal effective tax rates
Australia and country groupings, 2005-15 (%)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Australia
25.7
25.7
25.7
25.7
25.7
25.7
25.7
25.7
25.7
25.7
25.7
G20*
31.8
30.9
30.6
29.5
27.8
27.2
27.1
27.2
26.7
26.1
26.0
OECD
21.4
20.7
20.2
19.1
18.9
18.7
18.7
18.6
18.5
18.1
17.7
45 Country*
23.6
22.9
22.6
21.7
20.9
20.7
20.8
20.7
20.7
20.3
19.6
G20
14
14
14
13
11
10
10
10
8
8
8
OECD
10
10
10
8
7
6
6
6
4
4
4
45 Country
16
16
16
14
12
11
11
11
9
9
8
*
Australia’s rank
* Simple average
Note: For manufacturing and services
Chart 4 shows the METRs all 45 countries in
the survey, at both 2005 and 2015.
While Australia’s tax burden on non-resources
capital investment of 25.7 per cent has not
changed from 2005, most other countries have
been reducing capital taxation to encourage
economic growth. Corporate income tax
rates have fallen among OECD countries by
3 percentage points from 2005 to 2015 (and
even in the last year by 0.2 percentage points).
As a result, it is not surprising that the simple
average OECD METR has fallen from 21.4 per
cent in 2005 to 17.7 per cent in 2015; for all 45
countries the simple average METR has fallen
from 23.5 per cent to 19.6 per cent over the
same period. Nor is it surprising that Australia
has moved from having the 10th highest METR
among all OECD countries in 2005 to the 4th
highest in 2015 (and from the 16th highest to the
8th highest among all 45 countries surveyed).
Examples of where pro-competitive tax reform
has been used to kick-start economic growth
include:
The United Kingdom: The UK has dropped
its company income tax rate from 30 per cent
beginning in 2008 in reaction to the fallout from
the 2008-09 financial crisis. Today, the UK has
16
Minerals Council of Australia
a corporate income tax rate of 20 per cent, now
equal to the small business tax rate with plans
to further reduce its corporate income tax rate
to 17 per cent by 2020. The UK also broadened
its tax base including scaling back capital cost
allowances, especially for buildings. Overall, its
METR has fallen from 28.6 per cent in 2009 to
22.9 per cent in 2015.
New Zealand: Australia has a significantly
higher METR than New Zealand, by almost
5 percentage points. This reflects in part New
Zealand’s lower 2015 company income tax rate
(28 per cent), which has fallen from 33 percent
in 2005. New Zealand also has a somewhat
lower inflation rate than Australia that reduces
the tax burden since depreciation and inventory
costs are based on historical rather than
replacement value.
Nordics: All five Nordic economies (Denmark,
Finland, Norway, Sweden and Iceland) tax
capital less heavily in the non-resource sector
than Australia. The company tax rate varies
from 20 per cent in Finland and Iceland to
27 per cent in Norway. The METR in all four
countries is well below Australia’s 25.7 per cent
rate: Denmark at 17 per cent, Finland at 12.6
per cent, Norway at 23 per cent, Sweden at
15.2 per cent and Iceland at 12.7 per cent.
Chart 3
Marginal effective tax rates
Australia and country groupings, 2005-15 (%)
Australia
%
G20
OECD (34)
All 45 countries
35
30
25
20
15
10
5
20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
0
Note: For manufacturing and services
Canada: As another resource-based country,
Canada has taken steps in the past decade and
a half to reduce the tax burden on capital. It
has lowered the company income tax (once a
combined federal-provincial rate of 43 per cent
in 2000 and 34.2 per cent in 2005) to 26.6 per
cent in 2015 (somewhat higher than in 2013).
It also brought many capital cost allowance
rates closer to economic depreciation rates and
eliminated most asset-based capital taxes on
businesses. All provinces east of Manitoba have
adopted a value-added tax that has eliminated
most sales taxes on capital and intermediate
goods. As a result of these changes, the METR
has fallen by almost a half from 38.8 per cent in
2005 to 20.3 per cent in 2015.
While Australia’s tax burden
on non-resources capital
investment of 25.7 per cent
has not changed from 2005,
most other countries have been
reducing capital taxation to
encourage economic growth.
Growing the Australian economy with a competitive company tax
17
Chart 4
Marginal effective tax rates
By country, 2005 and 2015 (%)
2005
2015
% 0 10 20 30405060
India
Brazil
Japan
France
United States
Argentina
Russia
G20*
Australia
China
Korea, Republic
Germany
Austria
Norway
United Kingdom
Spain
Peru
New Zealand
Portugal
Canada
Indonesia
All 45 countries*
Saudi Arabia
Belgium
OECD*
Mexico
Netherlands
Denmark
Colombia
Slovak Republic
Israel
Sweden
Hungary
South Africa
Iceland
Finland
Luxembourg
Czech Republic
Poland
Greece
Estonia
Ireland
Switzerland
Zambia
Italy
Chile
Turkey
Slovenia
* Simple average
Note: For manufacturing and services
18
Minerals Council of Australia
United States, Italy, France, Germany and
Japan: These G7 countries have diverged
significantly in their approach to company
tax reform.
• The United States has made little change to
its company tax system outside of providing
some special incentives from time to time,
such as bonus depreciation for shorter-lived
assets. This reduces the METR in United States
to 27.3 per cent and has been awarded on
a yearly basis until recently. However, the
company tax rate has been the highest in
the world, encouraging corporate inversions
and foreign takeovers that reduce effective
rates. Both Democrats and Republicans
have made proposals to lower company tax
rates to the 15 to 28 per cent range and to
broaden the tax base.
• Since 2011, Italy has adopted a deduction
for equity costs. With a larger allowance
provided since 2014, its METR has been
reduced to the lowest among the G7
countries.
Overall, while countries
have their own individual
experiences with tax reform,
most have moved to reduce
the company income tax rate
and tax burdens on capital.
• France has raised its company tax rate from
35 to 38 per cent since 2005, resulting in
the second highest tax burden on capital
investments among OECD countries.
Concerned over its low private investment, it
is proposing to reduce its company tax rates
to around 34 per cent in 2016.
• Germany has substantially reduced its
company income tax rate from 38.9 per cent
to 29.7 per cent in 2015 (including municipal
taxes). It has reduced its overall METR in the
past 11 years from 33.8 per cent to 23.8 per
cent, slightly below the rate in Australia.
• Japan has been reducing its company
income tax rate since 1999. The current rate
is 33.1 per cent, sharply down from 39.5
per cent in 2005. Nonetheless, it has one of
the highest METRs among OECD countries
at 42.2 per cent due to a significant capital
tax on fixed assets (without the tax on fixed
assets, the METR would be 27.2 per cent).
Overall, while countries have their own
individual experiences with tax reform, most
have moved to reduce the company income
tax rate and tax burdens on capital.
Growing the Australian economy with a competitive company tax
19
5 Transfer taxes: new evidence
The analysis of METRs so far ignores stamp duties and other transfer
taxes that apply to real estate and securities, including new financial
transaction taxes introduced in several countries.
For the first time we have incorporated
transfer taxes into our METR calculations
for 2015 as part of this analysis.
Of the 45 countries in our survey, 32
countries – including Australia – have
transfer taxes of some sort; typically
on real estate (land and buildings) and
securities (shares, bonds and money market
transactions). Many transfer taxes were
introduced over a century ago as stamp
duties constitute an easy-to-administer
source of revenue. Other transfer taxes
such as financial transaction taxes have
been introduced more recently in various
countries (such as France and Italy) as
a source of revenue to offset the cost of
bank bailouts arising from the GFC, or to
deter speculation. Some have been used
as a surrogate for value-added taxation, or
simply to raise revenue in a less politically
contentious manner since statutory rates
appear relatively low.
Nonetheless, transfer taxes on real estate
assets and securities distort capital markets
in significant ways. Real estate transfer
taxes are similar to sales taxes on capital
purchases, increasing the cost of capital
and deterring investment. They also affect
the mobility of companies since they pay
a penalty in deciding to change locations
for business purposes. Security transfer
20
Minerals Council of Australia
taxes can hurt investors rebalancing their
portfolios to improve investment returns, in
the same way that taxes on capital gains
realisations may incentivise investors to
keep old assets.
In Chart 5 and Table 3, we assess the
impact of transfer taxes on METRs for all 45
countries. In Australia, the METR rises from
25.7 per cent to 28.9 per cent in 2015 once
state stamp duties, primarily applying to real
estate transfers, are included.
The 3.2 percentage point impact on METRs
in Australia is large relative to most countries,
but less than in some transfer tax-reliant
countries. Countries where transfer taxes
increase the tax burden by close to or
more than is the case in Australia include:
Argentina (4 percentage points), China (4
percentage points), Finland (3.4 percentage
points), Germany (3.1 percentage
points), Indonesia (3.6 percentage points),
Luxembourg (4.4 percentage points),
Netherlands (4.1 percentage points),
Portugal (4.3 percentage points), Sweden
(3 percentage points), the United Kingdom
2.7 percentage points) and Zambia
(11.9 percentage points).
Some countries do not have significant
transfer taxes. They include Belgium, Israel,
New Zealand and the United States.
Chart 5
Marginal effective tax rates including stamp duties and other transfer taxes
By country, 2015 (%)
Base model (without transfer taxes)
Alternate model (with transfer taxes)
% 0 5 1015 2025 30 3540 45 50
India
Brazil
Japan
Argentina
France
United States
Russia
Australia
China
G20*
Germany
Austria
United Kingdom
Portugal
Norway
Korea, Republic
Indonesia
Spain
Peru
All 45 countries*
Netherlands
Canada
New Zealand
Zambia
Colombia
Mexico
OECD*
Saudi Arabia
Belgium
Sweden
Luxembourg
Denmark
Finland
Slovak Republic
Israel
Czech Republic
Hungary
South Africa
Iceland
Ireland
Greece
Poland
Estonia
Switzerland
Italy
Turkey
Chile
Slovenia
* Simple average
Note: For manufacturing and services
Growing the Australian economy with a competitive company tax
21
Table 3
Marginal effective tax rates with and without transfer taxes
2015 (%)
Ranking overall METR
Alternate model
Variation
(without transfer taxes)
(with transfer taxes)
(percentage points)
Australia
Austria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Korea, Republic
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
25.7
23.5
18.4
20.3
6.8
12.1
17.0
10.6
12.6
36.1
23.8
11.3
14.9
12.7
10.4
15.5
8.3
42.1
24.1
12.5
17.3
17.1
20.9
23.0
11.5
20.9
15.6
5.4
22.2
15.2
10.0
5.7
22.9
34.6
28.9
26.3
18.4
21.0
7.0
15.1
17.0
10.6
16.0
36.6
26.9
11.6
14.9
13.9
13.0
15.5
8.3
42.1
24.4
17.9
19.7
21.2
20.9
24.6
11.6
25.2
15.6
5.4
23.2
18.2
10.2
7.1
25.6
34.6
+3.2
+2.8
0.0
+0.7
+0.2
+3.0
0.0
0.0
+3.4
+0.5
+3.1
+0.3
0.0
+1.2
+2.6
0.0
0.0
0.0
+0.3
+5.4
+2.4
+4.1
0.0
+1.6
+0.1
+4.3
0.0
0.0
+1.0
+3.0
+0.2
+1.4
+2.7
0.0
8
12
22
19
43
35
25
38
33
4
11
37
30
32
39
28
42
3
9
34
23
24
18
13
36
17
27
45
15
29
40
44
14
5
8
11
26
20
44
33
29
40
30
5
10
39
34
36
37
32
42
3
15
28
24
19
21
14
38
13
31
45
17
27
41
43
12
6
Brazil
China
India
Russia
45.5
24.1
48.4
29.0
46.9
28.9
48.5
29.0
+1.4
+4.8
+0.1
0.0
2
10
1
7
2
9
1
7
Argentina
Colombia
Indonesia
Peru
Saudi Arabia
South Africa
Zambia
33.2
16.7
19.7
21.3
19.0
14.2
8.5
37.2
20.3
23.3
21.3
19.0
14.3
20.4
+4.0
+3.6
+3.6
0.0
0.0
+0.1
+11.9
6
26
20
16
21
31
41
4
23
16
18
25
35
22
G20*
26.0
21.0
– 5.9
OECD*
17.7
19.1
+1.4
45 Country*
19.6
21.3
+1.7
* Simple average
22
(descending)
Base model
Minerals Council of Australia
Base
Alternate
Note: For manufacturing and services
6 Mining tax and royalty comparisons
Mining companies are taxed similarly to other companies with respect
to company income tax, capital taxes, sales and transfer taxes. They
differ due to special resource taxes levied by jurisdictions to capture
any ‘rents’ earned by mining companies from the extraction of ore.
Rents have a special economic meaning
in that they are profits generated from
operations in excess of total current and
capital costs earned on projects. One
can therefore think of rents as economic
income measured by the difference between
revenues and economic costs (operating
costs, exploration and development costs
and total financing costs for both debt
and equity).
In many countries, governments, as the
owner of the natural resource, also impose
levies on mining companies. When the
resource is owned privately, such as in
the United States, a landowner receives
a payment from the mining company. A
government may still levy a special tax on
mining operations since the taxation of rents
is less distortionary compared to other taxes.
However, this does complicate comparisons
across countries since private ownership
may be involved (in our calculations, we take
the government as the resource owner).
A rent tax or rent-based royalty would be
applied on revenue less economic costs,
measured at the pit’s mouth. If a project
does not earn rents – revenues just cover
economic costs – then a neutral rent levy
would be equal to zero. At least theoretically,
a rent tax is neutral with respect to investment
decisions since a company invests at the
point in which incremental revenues equal
marginal cost to maximise profits (this is the
point in which rents are zero).
In our analysis, we compute Marginal
Effective Tax and Royalty Rates (METRRs) for
mining investments in Australia compared
to eight other jurisdictions, focusing on iron
ore in Table 4.19 (Table A4 in the Appendix
provides a summary of tax and royalty
provisions in each country incorporated in the
estimates.) We note the following important
differences among the countries surveyed:
• Mining levies: Australian states generally
levy mining royalties on sales (rates
varying from 2.7 to 7.5 per cent for iron
ore). The rate is higher than Brazil (2 per
cent) and Colombia (5 per cent), though
roughly comparable to rates in South
Africa (0.5 to 7 per cent) and Zambia
(6 per cent for underground and 9 per
cent for open cast mining). Canada, Chile,
Peru and several U.S. states levy mining
taxes or royalties on either operating or
net income (Minnesota levies a royalty
on a per unit basis) with mining tax
rates being higher given that costs are
deducted from the base.
Growing the Australian economy with a competitive company tax
23
Table 4
Mining marginal effective tax and royalty rates (iron ore)
By country, 2015 (%)
Country
METRR (all levies)
Mining levies only
Taxes only
Australia
37.0
21.9
15.8
Brazil
14.7
5.8
8.9
Canada
6.5
0.4
6.1
Chile
14.1
6.9
7.2
Colombia
34.8
14.6
20.2
Peru
27.7
13.3
14.4
South Africa
38.3
20.4
17.9
United States
26.1
2.6
23.5
Zambia
42.8
26.3
16.5
*
* The highest METRR in Canada is Manitoba’s at 21.3 per cent and the lowest is British Columbia at -8.4 per cent, the latter reflecting
tax credits and other incentives for exploration.
• Company income tax: Australia’s company
income tax rate is 30 per cent on mining,
the same as the general rate. Exploration
costs are expensed and development costs
are amortised over the life of the mine. For
other countries, the company income tax
rates as reported in Table A1 vary from as
low as 26.6 per cent in Canada to as high
as 40 per cent in United States. Zambia
has a special rate on mining income. Most
other countries expense exploration costs
under the company income tax, except
Brazil (amortised), Colombia (successful
exploration amortised), Peru (amortised
over three years) and United States (30 per
cent is amortised over five years and the
balanced expensed). Development costs are
expensed in South Africa only.
• Other taxes: In Australia, stamp duty
applies to mining, although companies
themselves build a share of structures (the
stamp duty impacts on property transfers
only). Transfer taxes on real estate sales or
security transfers are also levied in Brazil,
Canada, Chile, South Africa and Zambia (the
latter has a transfer tax on real estate, shares
and mining rights at 10 per cent). Canada
and the United States have subnational
24
Minerals Council of Australia
jurisdictions that apply sales taxes on capital
purchases, while Chile has stamp duties on
debt financing. Colombia levies a net asset
tax of 0.5 per cent as well as a transfer tax
on debt financing.
Once tax and mining levies are taken into
account, Australia has the 3rd highest METRR
amongst nine countries. Only Zambia and
South Africa have higher fiscal burdens.
Australian investments are subject to high
effective royalty rates (second only to Zambia),
while other taxes are especially high in the
United States (due to its high company tax rate)
and Colombia (with various other levies such
as the net asset tax). Canada has the lowest
METRR due to significant incentives for mining
exploration and processing under provincial
regimes and relatively low company
income taxes.
7 Reforms Australia could consider
Overall, Australia imposes higher tax burdens on investment compared
to most industrialised economies.
The company income tax rate, left unchanged
at 30 per cent since the Ralph Report, is now
the 6th highest among OECD countries and
11th highest of the 45 countries in this study.
Not only is investment deterred but the high
company tax rate discourages companies
from keeping their profits and company tax
revenues in Australia.
Australia has been advised by the Henry
Report in the past to lower its company
income tax rate to 25 per cent. It should
consider this as a minimum and even
perhaps go further by pursuing the UK
strategy of reducing the company tax rate
to 20 per cent over time.
Obviously, the government would lose
revenues so how would it be able to make
up the deficiency? This report cannot
evaluate how best to achieve a competitive
business tax structure with adjustments
to the fiscal budget. However, it would be
appropriate to consider a few options that
could be considered in time.
What would be the objective of any reform?
A tax system is best when it is efficient and
fair. As noted above, company tax is a not a
good instrument to achieve fairness since it
can be shifted to workers and lower-income
Australians through higher consumer prices.
Fairness is best achieved by a neutral
company tax that imposes similar tax
burdens on business activities. Neutrality is
a better principle to pursue.
The principle of neutrality is not only useful
to make sure the company tax is fair but
also efficient by not distorting the allocation
of resources in the economy. Governments
are best to stay out of the boardrooms of
the nation, letting entrepreneurs decide how
best to allocate scarce capital resources
to their most profitable uses. Neutrality
can thus contribute to better growth by
achieving better use or productivity from
existing resources. Where tax incentives
should be provided are in clear cases where
companies underinvest when they cannot
capture the full returns on their investment
that benefits other companies (as in
research and exploration).
Thus, the objective for company tax reform in
Australia would be to achieve internationally
competitive tax rates with a more neutral
business tax structure. Several approaches
can be considered.
The first is to broaden the tax base to make
it more neutral with the revenues used to
reduce the company income tax rate, an
approach used in recent years in many OECD
countries. The challenge, as noted earlier, is
that Australia already has a relatively ‘clean’
system with few special tax concessions or
preferences. The Ralph Review constituted
an important base broadening exercise,
removing various concessions as a basis for
the last notable step-down in the corporate
tax rate in Australia.
Growing the Australian economy with a competitive company tax
25
One route Australia should be careful in
travelling is with respect to preferences for
small businesses. While small businesses
create many job opportunities, their success
depends on growth. Tax systems that provide
a preferential tax rate for small businesses also
impose a tax on small business growth, since
a growing company will lose the tax benefits
of being small. This issue has been important
in countries like Canada, where a low small
business tax can result in a ‘tax wall’, impeding
business growth.20 A better policy would be to
provide expensing for capital expenditures up
to a limit that is available to all firms.
While some other limited revenue-raising
avenues for base broadening may be available,
such as some tightening with respect to
international income, any revenues would be
of minor significance. An alternative approach
would be to change the mix of taxes by
reducing reliance on company income taxes
with increased revenues from less economically
harmful sources of revenue such as the GST or
property tax. While some countries are relying
more on other forms of business taxation, such
as transfer taxes and net asset taxes, Australia
already has high stamp duties on real estate
transfers that impose a penalty on mobility and
flexibility. Land taxes would be a more efficient
source of revenue.
26
Minerals Council of Australia
Tax systems that provide a
preferential tax rate for small
businesses also impose
a tax on small business
growth, since a growing
company will lose the tax
benefits of being small. This
issue has been important
in countries like Canada,
where a low small business
tax can result in a ‘tax wall’,
impeding business growth.
7 Conclusion
Overall, Australia’s business tax
structure lacks competitiveness
due to its relatively high company
income tax rate and stamp duties.
In comparing Australia’s company tax
system with other major countries, we find
that Australia has one of the highest tax
burdens on capital in manufacturing and
services. We also find that Australia’s tax
burden on mining is one of the highest
among major mining countries.
We agree with the Henry Report’s
recommendation that the company income
tax rate in Australia should be reduced to at
least 25 per cent. A braver reform would be
to consider a rate closer to 20 per cent (like
in the United Kingdom). Getting there would
likely mean some rebalancing in revenue
sources by relying on less economically
harmful taxes, such as the GST and
property/land tax.
Growing the Australian economy with a competitive company tax
27
Data appendix
Table A1
Minerals Council of Australia
28
General company income tax rates
By country, 2005-15 (%)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Australia
Austria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Korea, Republic
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
30.0
25.0
34.0
34.2
17.0
26.0
28.0
24.0
26.0
35.0
38.9
32.0
16.0
18.0
12.5
31.0
37.3
39.5
27.5
30.4
30.0
31.5
33.0
28.0
19.0
27.5
20.4
25.0
35.0
28.0
21.3
30.0
30.0
39.3
30.0
25.0
34.0
33.9
17.0
24.0
28.0
23.0
26.0
34.4
38.9
29.0
17.3
18.0
12.5
31.0
37.3
39.5
27.5
29.6
29.0
29.6
33.0
28.0
19.0
27.5
21.0
24.0
35.0
28.0
21.3
20.0
30.0
39.3
30.0
25.0
34.0
34.0
17.0
24.0
25.0
22.0
26.0
34.4
38.9
25.0
20.0
18.0
12.5
29.0
37.3
39.5
27.5
29.6
28.0
25.5
33.0
28.0
19.0
26.5
21.0
23.0
32.5
28.0
21.3
20.0
30.0
39.3
30.0
25.0
34.0
31.4
17.0
21.0
25.0
21.0
26.0
34.4
30.2
25.0
20.0
15.0
12.5
27.0
31.4
39.5
27.5
29.6
28.0
25.5
30.0
28.0
19.0
26.5
21.0
22.0
30.0
28.0
21.2
20.0
28.0
39.3
30.0
25.0
34.0
31.0
17.0
20.0
25.0
21.0
26.0
34.4
30.2
25.0
20.0
15.0
12.5
26.0
31.3
39.5
24.2
28.6
28.0
25.5
30.0
28.0
19.0
26.5
21.0
21.0
30.0
26.3
21.2
20.0
28.0
39.1
30.0
25.0
34.0
29.4
17.0
19.0
25.0
21.0
26.0
34.4
30.2
24.0
19.0
18.0
12.5
25.0
31.3
39.5
24.2
28.6
30.0
25.5
30.0
28.0
19.0
29.0
21.0
20.0
30.0
26.3
21.2
20.0
28.0
39.2
30.0
25.0
34.0
27.6
20.0
19.0
25.0
21.0
26.0
36.1
30.2
20.0
19.0
20.0
12.5
24.0
31.3
39.5
24.2
28.8
30.0
25.5
28.0
28.0
19.0
29.0
21.0
20.0
30.0
26.3
21.2
20.0
26.0
39.2
30.0
25.0
34.0
26.1
17.5
19.7
25.0
21.0
25.7
34.7
30.2
24.6
19.8
15.6
12.5
25.8
31.3
39.5
24.2
28.6
28.4
25.5
29.7
28.0
19.0
27.2
21.0
20.3
30.0
26.3
21.2
20.0
27.5
39.1
30.0
25.0
34.0
26.3
20.0
19.0
25.0
21.0
24.5
36.1
30.2
26.0
19.0
20.0
12.5
25.0
31.4
37.0
24.2
29.2
30.0
25.5
28.0
28.0
19.0
31.5
23.0
17.0
30.0
22.0
21.2
20.0
23.0
39.1
30.0
25.0
34.0
26.3
21.0
19.0
24.5
21.0
20.0
36.9
30.2
26.0
19.0
20.0
12.5
26.5
31.4
37.0
24.2
29.2
30.0
25.0
28.0
27.0
19.0
31.5
24.0
17.0
30.0
22.0
21.1
20.0
21.0
39.1
30.0
25.0
34.0
26.6
22.5
19.0
23.5
20.0
20.0
38.0
29.7
29.0
19.0
20.0
12.5
26.5
31.4
33.1
24.2
30.0
30.0
25.0
28.0
27.0
19.0
29.5
24.0
17.0
28.0
22.0
17.9
20.0
20.0
39.1
Brazil
China
India
Russia
27.8
25.0
36.6
22.0
34.0
25.0
33.7
22.0
34.0
25.0
34.0
22.0
34.0
25.0
34.0
22.0
34.0
25.0
34.0
20.0
34.0
25.0
33.2
20.0
34.0
25.0
32.4
20.0
34.0
25.0
33.7
20.0
34.0
25.0
34.0
20.0
34.0
25.0
34.0
20.0
34.0
25.0
34.6
20.0
Argentina
Colombia
Indonesia
Peru
Saudi Arabia
South Africa
Zambia
35.0
35.0
30.0
30.0
20.0
30.0
35.0
35.0
35.0
30.0
30.0
20.0
29.0
35.0
35.0
34.0
30.0
30.0
20.0
29.0
35.0
35.0
33.0
30.0
30.0
20.0
28.0
35.0
35.0
33.0
28.0
30.0
20.0
28.0
35.0
35.0
33.0
25.0
30.0
20.0
28.0
35.0
35.0
33.0
25.0
30.0
20.0
28.0
35.0
35.0
33.0
27.0
30.0
20.0
28.0
35.0
35.0
34.0
25.0
30.0
20.0
28.0
35.0
35.0
34.0
25.0
30.0
20.0
28.0
35.0
35.0
34.5
25.0
28.0
20.0
28.0
35.0
G20*
G20 w
31.5
35.2
31.0
35.0
30.9
35.0
29.9
33.9
29.5
33.7
29.3
33.7
29.1
33.6
29.1
33.6
28.9
33.1
28.8
33.0
28.6
32.5
OECD*
OECD w
28.2
35.7
27.7
35.4
27.2
35.2
26.1
34.0
25.9
33.8
25.9
33.8
25.8
33.7
25.7
33.6
25.7
33.1
25.5
33.0
25.3
32.4
45 Country*
28.6
28.2
27.8
27.0
26.7
26.6
26.5
26.5
26.5
26.4
26.2
* Simple average; w is GDP-weighted average
Marginal effective tax rates, without transfer taxes
2005-15 (%)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Australia
Austria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Korea, Republic
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
25.7
23.5
22.9
38.8
4.8
17.2
20.6
13.4
17.0
35.1
33.8
17.3
13.2
11.3
10.4
18.7
32.5
45.8
26.9
14.9
17.4
22.2
20.1
23.9
13.3
19.3
13.0
14.7
28.4
19.8
15.9
11.0
29.7
35.2
25.7
23.5
14.6
36.2
4.8
15.7
20.6
12.7
17.0
33.8
33.8
15.6
14.3
11.3
10.4
18.7
32.5
45.8
26.9
14.4
16.7
20.7
20.1
23.9
13.3
19.3
13.4
14.0
28.4
19.8
15.9
5.8
29.7
35.2
25.7
23.5
14.6
30.9
4.8
15.7
18.2
12.0
17.0
34.8
33.8
13.6
14.7
11.3
10.4
17.3
32.5
45.8
26.9
14.4
16.0
17.5
20.1
23.9
13.3
18.6
13.4
13.3
26.2
19.8
15.9
5.8
29.7
34.9
25.7
23.5
15.3
28.0
4.8
13.5
18.2
11.3
17.0
34.8
24.3
13.6
14.7
9.4
10.4
15.8
27.3
45.8
26.9
13.3
16.0
17.5
17.9
23.9
13.3
18.6
13.4
7.5
24.0
19.8
15.3
5.8
28.4
34.9
25.7
23.5
15.3
27.3
4.8
12.8
18.2
11.3
17.0
34.8
24.3
13.6
14.7
9.4
10.4
15.1
27.2
45.8
24.1
11.5
16.0
17.5
17.9
23.9
13.3
18.6
13.4
7.1
24.0
18.5
15.3
5.8
28.6
34.9
25.7
23.5
15.3
19.9
4.8
12.1
18.2
11.3
17.0
33.7
24.3
13.1
14.3
11.3
10.4
14.5
27.2
45.8
24.1
11.5
17.4
17.5
17.9
23.9
13.3
20.5
13.4
6.6
24.0
18.5
15.3
5.8
28.7
34.6
25.7
23.5
15.3
18.8
5.9
12.1
18.2
11.3
17.0
34.8
24.3
11.2
14.3
12.7
10.4
13.8
27.2
45.8
24.1
11.7
17.4
17.5
20.9
23.9
13.3
20.5
13.4
6.6
24.0
18.5
15.3
5.8
26.8
34.6
25.7
23.5
15.3
17.5
5.0
12.6
18.2
11.3
16.7
34.8
24.3
13.4
14.6
9.7
10.4
15.0
26.8
45.8
24.1
11.5
16.3
17.5
18.7
23.9
13.3
19.1
13.4
6.8
24.0
18.5
15.3
5.8
28.4
34.6
25.7
23.5
15.3
18.8
5.9
12.1
18.2
11.3
15.9
34.8
24.3
14.1
14.3
12.7
10.4
14.5
21.2
44.3
24.1
12.0
17.4
17.5
20.9
23.9
13.3
22.6
14.9
5.4
24.0
15.2
15.3
5.8
25.5
34.6
25.7
23.5
15.3
19.0
6.2
12.1
17.7
11.3
12.6
35.4
24.3
14.0
14.3
12.7
10.4
15.5
12.9
44.3
24.1
12.0
17.3
17.1
20.9
23.0
13.3
22.5
15.6
5.4
24.0
15.2
15.3
5.7
23.4
34.6
25.7
23.5
18.4
20.3
6.8
12.1
17.0
10.6
12.6
36.1
23.8
11.3
14.9
12.7
10.4
15.5
8.3
42.1
24.1
12.5
17.3
17.1
20.9
23.0
11.5
20.9
15.6
5.4
22.2
15.2
10.0
5.7
22.9
34.6
Brazil
China
India
Russia
42.3
48.3
50.9
34.8
42.3
48.3
48.7
32.6
42.3
48.3
49.0
32.6
40.1
48.3
49.0
32.6
41.4
24.1
49.0
28.9
41.5
24.1
48.4
28.9
42.0
24.1
47.8
28.9
42.1
24.1
48.7
28.9
42.9
24.1
49.0
28.9
41.7
24.1
49.1
29.0
45.5
24.1
48.4
29.0
Argentina
Colombia
Indonesia
Peru
Saudi Arabia
South Africa
Zambia
36.8
26.5
24.2
24.2
20.3
15.6
8.7
33.2
26.5
24.2
24.5
20.3
14.9
8.7
33.2
34.6
24.2
24.5
20.3
14.9
8.7
33.2
33.1
24.2
24.5
20.3
14.3
8.7
33.2
32.0
22.4
24.5
20.3
14.3
8.7
33.2
31.6
19.8
24.5
20.3
14.3
8.7
33.2
36.1
19.8
24.5
20.3
14.3
8.7
33.2
32.8
21.5
24.5
20.3
14.3
8.7
33.2
36.8
19.8
24.5
19.0
14.3
8.7
33.2
34.2
19.7
24.5
19.0
14.2
8.5
33.2
16.7
19.7
21.3
19.0
14.2
8.5
G20*
G20 w
31.8
36.4
30.9
36.1
30.6
35.9
29.5
34.8
27.8
32.3
27.2
31.9
27.1
31.8
27.2
31.9
26.7
31.4
26.1
30.9
26.0
30.5
OECD*
OECD w
21.4
32.7
20.7
32.3
20.2
31.9
19.1
30.7
18.9
30.6
18.7
30.3
18.7
30.2
18.6
30.2
18.5
29.6
18.1
29.1
17.7
28.6
45 Country*
23.6
22.9
22.6
21.7
20.9
20.7
20.8
20.7
20.7
20.3
19.6
* Simple average; w is GDP-weighted average
Growing the Australian economy with a competitive company tax
Table A2
29
34%, including a
basic CIT (15%), a
surcharge (10%)
and a social
contribution on
net profit (9%);
allowing deduction
for the nominal
cost of equity.
Amortised over
the useful life of
the mine.
Amortised over
the useful life of
the mine.
Buildings: 4% SL;
M&E: 10% SL, but
the normal rate
can be increased
by 50% for twoshift operations
and doubled-up
for three-shift
operations.
Only FIFO and
average-cost
accounting are
allowed.
30%
Fully expensed.
Amortised over
the life of the mine
(which is assumed
to be 25 years in
our report).
Buildings: 2.5%;
M&E: 5%, but
taxpayers have
the option of selfassessing the
effective useful life
by asset and type,
and certain mining
capital assets may
be written off
using 200% of
the DB rate.
Can be valued
at cost, marketselling value, or
replacement price,
but LIFO is not
permitted.
Corporate
income tax rate
Exploration
Development
expenditures
Depreciation
(FIFO=first-infirst-out; LIFO=
last-in-first-out)
Inventory
accounting
(Yrs = number
of years of official
useful life; SL =
straight line;
DB = declining
balance)
Brazil
Australia
FIFO
25% annual
allowance for all
mining assets,
with a conditional
100% accelerated
allowance, which
will be phased
out after 2020.
30% annual
depreciation
allowance, but
fully expensed
in Quebec.
Fully expensed,
with additional tax
credit provided
in BC (20%) and
Quebec (12%).
26%-29%,
combining
federal (15%)
and provincial
CIT rates
(11%-14%).
Canada*
With inflation
adjustment, FIFO
and weightedaverage-cost
accounting are
allowed.
Buildings: 2%
SL; M&E: 11.11%
SL, which can be
tripled for new or
imported M&E;
Automobiles:
14.29% SL.
Depreciated like
fixed assets (see
below).
Expensed.
Profits adjusted
for inflation.
22.5% (24%
in 2016).
Chile
All conventional
methods including
FIFO and LIFO are
permitted.
Buildings: 20 yrs;
M&E 10 yrs, with
additional 25%
allowance for every
eight-hour shift;
Automobiles &
computers: 5 yrs;
Both SL and DB
are allowed.
Written-off in at
least five years.
Written-off
within at least
five years, but
allows expensing
of unsuccessful
explorations.
34.45%
Colombia
Corporate income tax and mining royalty and rent tax for metallic mining
By country, 2015
Minerals Council of Australia
Table A3
30
All conventional
methods are
allowed.
Buildings: 5% SL;
M7E: up to 20% SL
(including vehicles)
but no more than
that recorded by
financial
accounting.
Amortised within
three years.
Amortised within
three years.
28%, will be
further reduced
to 26% by 2019.
Peru
Inventory is valued
at the lower of cost
or net realisable
value; LIFO is
not allowed.
All items of
capital expenditure
incurred in relation
to any mine can
be deducted
from mining
income. Other
depreciable assets
(e.g. housing
for workers) are
amortised in 10
years.
Fully expensed.
Fully expensed.
34–170/x, with
x=ratio of taxableto-gross-come
(multiplied by 100).
28%, except for
gold mining to
which the CIT rate
is determined by:
South Africa
Optional.
14.3% for the
depreciable mining
assets except for
buildings which
are amortised at
2.6% (base?).
70% expensed
with the balance
of 30% being
capitalised and
amortised within
60 months.
70% expensed
with the balance
of 30% being
capitalised and
amortised within
60 months.
UT: 5%
NV: No CIT
MN: 2.45% for
mining (vs. 9.8%
in general)
AZ: 6.5%
AK: 0-9.4%
35%-41%,
combining the
federal (35%) and
state CIT rates as
below:
United States*
Inventory is valued
at the lower rate
of cost or net
realisable value.
Buildings: 10%
initial allowance
and 5% SL annual
allowance; M&E:
25% SL annual
allowance.
25% SL
Fully expensed.
30%=[a-(ab/c)],
where, a=15%,
b=8% and c=ratio
of the assessable
income to gross
sales; it is 30%
when c ≤ 8%.
30% or higher for
mining income; it
is determined by:
Zambia
A transfer tax of
5.6% on real estate
including land
and buildings and
structure.
For the same type
of minerals, the
royalty rate varies
to take into account
processing costs:
the higher rate
applies to bulk
material, and the
lower ones to
further processed
forms.
The ad valorema
royalty on metallic
mining product is
levied by states
and varies by
product, ranging
from 2.5% to 7.5%.
Transfer tax
on immovable
property of 4%.
Deductible for CIT.
Iron ore: 2%;
Copper: 2%;
Gold: 1%;
A ‘federal’ royalty
(CFEM) is levied
on the mineral
sales revenue net
of taxes, insurance
and freight costs.
The royalty rate
varies by product:
A stamp duty on
debt financing:
0.6%; and an
equity-based
municipal license
fee: 0.25%-0.5%,
payable annually
(but capped at
8.000 UTM).
Royalty rate:
0.5%-14%,
progressive by
sales volume, with
the first 12,000
metric tonnes
exempted.
Royalty base on
operating income;
A progressive
equity tax on net
wealth over COP
1 billion; the top
annual rate on net
worth surpassing
5 billion pesos
($2.5 million) is
1% for 2016
(1.15% for 2015).
Deductible for CIT.
Iron/copper: 5%;
Gold: 4%;
0.25% security
transfer tax, a
stamp duty on
securities transfer.
Iron ore: 0.5%-7%.
Gold: 0.5%-5%;
Copper: 0%;
Royalty rate is
varied by mining
product and
the stage of
processing:
UT: 6.68%.
NV: 7.94%;
MN: 7.2%;
AZ: 8.17%;
AK: 1.76%;
State sales tax:
Utah: 2.6% of
taxable value,
which is the
gross value net
of the $50,000
annual exemption
per mine and
multiplied by 80%.
NV: 5% on net
income, similar
to the CIT base;
MN: a production
tax on sellable iron
ore at $2.56 per ton,
which is akin to an
ad valorem royalty
depending on the
iron ore price;
AZ: 2.5% on 50%
of net profit;
AK: 3-tier
progressive rate
on net income:
3%/5%/7%
($100k+)
Severance tax:
For Australia, federal and various state government websites and information provided by the Minerals Council of Australia.
For Brazil, http://www.pwc.com/gx/en/industries/energy-utilities-mining/mining/territories/brazil.html
For Canada, Natural Resources Canada, various provincial government websites, PWC, Tax Facts and Figures, Canada 2015, and Ernst & Young, Tax Alert.
For Chile, http://www.pwc.com/gx/en/industries/energy-utilities-mining/mining/territories/chile.html
For Colombia, various official tax documents and https://www.pwc.com/ca/en/events/publications/mining-in-colombia-2011-06-4-en.pdf
For Peru, http://www.pwc.com/gx/en/industries/energy-utilities-mining/mining/territories/peru.html
For South Africa, http://www.pwc.com/gx/en/industries/energy-utilities-mining/mining/territories/south-africa.html
For the U.S., http://www.pwc.com/gx/en/industries/energy-utilities-mining/mining/territories/united-states.html and various government websites including: http://www.tax.alaska.gov/programs/index.aspx; State of Arizona, 2014 Tax
Handbook; State of Minnesota, “Evaluation Report: Mineral Taxation,” http://www.auditor.leg.state.mn.us/ped/pedrep/mintax.pdf; Utah, http://tax.utah.gov and http://www.rules.utah.gov/publicat/code/r865/r865-16r.htm#E4
For Zambia, Library of Congress, http://www.loc.gov/law/foreign-news/article/zambia-mines-and-minerals-bill-and-related-income-tax-amendment-bill-tabled-in-parliament/, http://www.pwc.com/gx/en/tax/corporate-tax/worldwide-taxsummaries/assets/pwc-worldwide-tax-summaries-corporate-2015-16.pdf, and http://www.imf.org/external/pubs/ft/scr/2015/cr15153.pdf (Annex 1)
Growing the Australian economy with a competitive company tax
Except for Northern Territory, where the royalty is based on profit, or net value of production, with a 20 per cent rate.
b
Nevada does not have a company income tax in general. The 5 per cent tax presented is Nevada net proceeds tax that is 1/ applicable only to mining, 2/ based on a version of taxable income similar to that for the federal CIT, and
3/ deductible for federal CIT purposes like the state CIT in other states.
References
10% property
transfer tax on
transfers of
company shares,
land, buildings
and structures
and mining rights.
The ad valorem
rate is 6% for
underground
mining operations,
and 9% for open
cast mining
operations.
a
GR = gross receipts; TPT = transaction privilege tax.
N/A
3. additional
special mining
contribution by
metallic miners
with ‘tax-stability
agreement’:
4%-13.2%.
2. Special mining
tax by metallic
miners: 2%8.4%;
1. Mining royalty
payable by all:
1% -12%
(minimum 1%
of revenue);
Royalty rate varies
by product:
Nickel: 12%;
Three categories,
all based on
‘operating profit’:
Royalty base:
revenue at
mine pit.
** The United States includes five top mining states as listed in the text.
Provincial sales tax
in BC (7%), SAS
(5%) and Man (8%).
Transfer tax on real
estate at 1.5%.
Mining tax ranging
from 10% to
17% except for
Quebec where
a 3-tier (16-22%)
progressive rate
scheme applies.
The tax base is
largely a mining
rent with all capital
expenditures
expensed,
except for N&L,
which provides
a less generous
allowance for
development
expenditures and
depreciable assets.
Notes
* Canada includes all but three provinces that have little metallic mining.
(excluding
property taxes)
Other taxes
Royalty, or
mining tax
31
Endnotes
1
2
3
See L. Cao, A. Hosking, M. Kouparitsas, D.
Mullaly, X. Rimmer, Q. Shi, W. Stark, S. Wende,
‘Understanding the Economy-wide Efficiency
and Incidence of Major Australian Taxes’,
Treasury Working Paper, 2015-01, April 2015.
For a more detailed discussion of the approach,
see J. Mintz, ‘The Corporation Tax: A Survey’,
Fiscal Studies, Vol. 16(4), 1995, 23-68. See
also D. Chen and J. Mintz, ‘The 2014 Tax
Competitiveness Report: A Proposed Business
Tax Reform Agenda’, SPP Research Papers,
Vol. 8(4), School of Public Policy, University of
Calgary, February 2015.
5
See P. Sercu, and R. Vanpée, ‘Home Bias in
International Portfolios: A Review’, Katholieke
Universiteit Leuven, Department of Accountancy,
Finance and Insurance Research Report AFI
0710, 2007, which shows that 83.6 per cent
of equity held by Australians is from home
sources with Australia accounting for 1.9 per
cent of global equity. With a different approach
to measuring home biasness in equity markets,
the Australian equity market home biasness is
less striking although influenced by its distance
from major capital markets (I. Cooper, P. Sercu
and R. Vanpee, ‘A Pure Measure of Home Bias’,
June, 2015, http://ssrn.com/abstract=2612829).
7
Minerals Council of Australia
R. Heferen, Deputy Secretary of Treasury, ‘Tax
Reform and the Economic Backdrop’, Address
to the Minerals Council of Australia Biennial Tax
Conference, 26 March 2015.
4
6
32
Commonwealth of Australia, Review of Business
Taxation: A Tax System Redesigned, (Ralph
Report), Canberra, July 1999; Commonwealth
of Australia, Australia’s Future Tax System,
(Henry Report), Canberra, December 2009.
R. Heferen, Deputy Secretary of Treasury, ‘Tax
Reform and the Economic Backdrop’, Address
to the Minerals Council of Australia Biennial Tax
Conference, 26 March 2015.
A. C. Harberger, ‘Corporate Tax Incidence:
Reflections on What is Known, Unknown, and
Unknowable’, in Fundamental Tax Reform:
Issues, Choices and Implications, ed. John W.
Diamond and George R. Zodrow. Cambridge:
MIT Press, 2006.
8
W. G. Randolph, ‘International Burdens of the
Corporate Income Tax’, Congressional Budget
Office Working Paper No. 09, 2006.
9
W. Arulampalam, M. Devereux and G. Maffini,
‘The Direct Incidence of Corporate Income Tax
on Wages’, European Economic Review, 56(6)
2012, 1038-1054.
10
K. Hassett, and A. Mathur, ‘A Spatial Model
of Corporate Tax Incidence’, Applied
Economics, 47(13) 2006, 1350-1365, DOI:
10.1080/00036846.2014.995367.
11
L. Liu and R. Altshuler, ‘Measuring The Burden
Of The Corporate Income Tax Under Imperfect
Competition’, National Tax Journal, National Tax
Association, 66(1) 2013, 215-37.
12
R. Xavier, J. Smith and S. Wende, ‘The
Incidence of the Company Tax in Australia’,
Economic Roundup, Issue 1, Treasury,
Canberra, 2014.
13
A Canadian study examining the corporate
tax reductions from 2001 to 2004 found that a
10 per cent reduction in the user cost of capital
led to a 7 per cent increase in the capital stock.
See M. Parsons, ‘The Effect of Corporate
Taxes on Canadian Investment: An Empirical
Investigation’, Finance Canada, Working Paper
2008-01, Ottawa, 2008. A more recent survey
on the relationship between effective tax rates
and foreign direct investment estimated that a
one point reduction in the corporate income
tax rate results in an increase in foreign direct
investment by 2.49 per cent (see L.P. Feld and
J. H. Heckemeyer, ‘FDI and Taxation: A MetaStudy’, Journal of Economic Surveys, 25(2),
2011, 233-72).
14
See L. Cao, A. Hosking, M. Kouparitsas, D.
Mullaly, X. Rimmer, Q. Shi, W. Stark, S. Wende,
‘Understanding the Economy-wide Efficiency
and Incidence of Major Australian Taxes’,
Treasury Working Paper, 2015-01, April 2015.
15
Australia permits companies to use straight-line
or declining balance (twice the straight-line rate)
to calculate depreciation.
16
Table 1 refers to simple averages. The OECD
GDP-weighted average company income tax
rate was 33.5 per cent in 2005 and 28.5 per
cent in 2015 (Table A.1).
17
British Columbia, Manitoba and Saskatchewan
continue to have single-stage retail sales taxes
that result in significant sales taxes on business
inputs.
18
Congress extended bonus depreciation in
December 2015 until 2019.
19
We looked at coal investments in Australia
and estimated the METRR to be higher than for
iron ore at 47.7 per cent, largely due to smaller
operating margins. The METTR for mining levies
only is 22.7 per cent and for taxes only is
15.8 per cent.
20
See D. Chen and J. Mintz, ‘Small Business
Taxation: Revamping Incentives to Encourage
Growth’, SPP Research Papers, 4(7), School of
Public Policy, University of Calgary, 2011.
33
Growing the Australian economy with a competitive company tax
34
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(PO Box 4497, Kingston ACT Australia 2604)
P. + 61 2 6233 0600 | F. + 61 2 6233 0699
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