Pitcher Partners cautions against state-levied income tax
Pitcher Partners has warned the government against any move to introduce state income taxes.
“In our view, based on the experiences of countries like the US, the associated compliance issues would be difficult and time-consuming,” said Denise Honey, a partner at Pitcher Partners.
“We also query how much additional productivity would actually be generated nationally through tax competition amongst the states," Ms Honey added.
Ms Honey recognised that while some benefits may arise as a result of the states having greater control, there are material practical issues that would need to be overcome to make this a viable policy option.
“Difficulties arise in some countries where states are not bound by the terms of a double tax agreement entered into at the federal level."
She added: “This can give rise to outcomes where a foreign taxpayer may not have any tax or lodgement obligations for federal income tax purposes, but they may still have those obligations for state income tax purposes, contrary to the underlying policy of the double taxation arrangement between the two countries."
According to Ms Honey, any added difficulty for taxpayers in complying with their tax obligations would also serve to reduce Australia'a competitiveness in attracting foreign capital to invest in new business operations.
“Good tax policy allows taxpayers to make investment decisions on the basis of commercial drivers as opposed to acting as a driver of where taxpayers invest their money," said Ms Honey.
“We urge the government to properly consider these flow-on effects before proceeding further down the road to introducing such fundamental change.”