Impact of Corporate Tax Rate on Australian Taxpayers & Economy

This assignment provides solutions related to finance, focusing on the analysis of corporate tax rates in Australia and their impact on taxpayers and the economy. It discusses the potential effects of lowering the corporate tax rate from 30% to 25%, considering both positive and negative aspects. The solution explores the influence on foreign direct investment (FDI), job opportunities, technology adoption, and inflation. It also examines the role of the dividend imputation system in mitigating double taxation for domestic taxpayers, concluding that reducing tax rates is more favorable for Australia's economic growth and business investment. References to relevant articles are included to support the analysis.

Solution 2
(i)
% 8% 6% 7%
Year 0 1 2 3 4 5 6 7 8 9
CFi $0 $0 $6,500 $8,000 $8,000 $8,000 $5,500 $5,500 $5,500 $15,500 $
(ii)
Time Time1 Time5 Time10
Cash
flow $0 $8,000 $15,500
Solution 3
Is lowering the Australian corporate tax rate good policy? Discuss. Give particular consideration to the
Australian dividend imputation system and how the Australian corporate tax rate impacts on Australian
taxpayers.
Taxes are the driving forces for a country’s economy. The development or non-development of a country
and its people highly depends upon the tax policies of that country. So, the government or federal of that
country should develop the tax strategy after taking due care and emphasis on its after effects.
In the current article, we are going to discuss that whether lowering the corporate tax rate from 30% to
25% will be a good policy for Australia or not.
Currently, the corporate tax rate of Australia is 30% which was last changed in 2000 when the rate was
eventually reduced from 45% to 30%. Other countries having similar economy like Singapore has a tax
rate of 17% for its corporates, similarly UK has a tax rate of 19% and the United States tax rates are 30%
which are still under consideration for reduction. It means the Australia’s tax rates are on a very higher
side. It can have positive as well as negative impacts on its economy.
Let’s discuss the negative impacts of tax reduction on Australia’s economy. Please note that Australia is
an investment driven country. It means its economy highly depends upon the investment made by foreign
companies or individuals in Australia. If the Australia federal of taxation decides not to reduce its tax
rates then it will drastically impact the foreign direct investment (FDI) received by Australia. This is
because every investor wants to retain as much profit as he can from his investments. Every investor
before investing his money investigates about various factors. And one of such factors is tax. He
compares the tax rates of various countries before investing. If the tax rates of Australia, will be higher
than it will degrade the position of Australia in investors list. That means less chances of investment in

Australia economy. Reduced FDI can have various negative impacts on economy; some of them are as
below:
(a) Absence of FDI means loss of job opportunities and higher wages.
(b) Absence of FDI will lead to shutting down of the companies or shifting of their profits to the
countries having less tax rates.
(c) Absence or reduction in FDI will result in downgraded technology being used in countries
industries as the foreigners along with FDI brings the latest and developed technology being used
in their countries.
(d) Usage of downgraded technology will lead to poor productivity resulting in higher costs of
products and services.
(e) Higher costs of products and services will increase the inflation and will bring distress among
countries people.
(f) Higher inflation rate and lower growth rate will deteriorate the country’s economy.
So, from above, we can see that non reduction in tax rates will have very disastrous impacts.
On the other hand, if the tax rates are reduced, than it will reduce the tax collection by the government
and result in loss to exchequer. This loss will lead to lesser money with the government for development
of the country’s basic facilities and infrastructure. However, this loss can be mitigated by increasing tax
on other facilities that have least impact.
Now, let’s discuss the impact of tax reduction or non-reduction on domestic taxpayers.
Domestic taxpayers will have least impact due to tax rates reduction or non-reduction. This is because of
dividend imputation system. Dividend imputation system is a tax system applied in Australia some years
back. Since, the taxpayers are facing the issue of double taxation. As the dividends are distributed from
the after tax profit by the companies, so when the dividend is received by investors then it becomes their
income and get taxed in their hands as well. So, to avoid this double taxation of same money, dividend
imputation system is kept in place. Under this system, the investors or receivers of dividend gets the
franking credits to the extent of tax paid by the companies on their profits and the taxpayers can reduce
their tax liability to the extent of franking credits available with them. This mitigates the impact of double
taxation.
Further, since the tax rates applicable to the individuals are always lower than that applicable to the
companies, so the franking credits available are always excess to their tax liabilities. So, further reduction
in tax rates will not much impact on the domestic taxpayers.
Moreover, these franking credits are not available to foreign investors. That’s why reduction or non-
reduction in tax rates has major impact on them.
Now, to conclude we can say that reducing the tax rates are more favorable for Australia and it should go
with the same as non-reduction have more negative impacts then reducing the tax rates. So, we agree with
the Australian federal government plan to eventually lowering down the Australian corporate tax rate to

25% and they are correct in their belief that this will improve the economy and will stimulate business
investment and will create jobs.
The Conversation (2018). What economists and tax experts think of the company tax cut. Retrieved
from http://theconversation.com/what-economists-and-tax-experts-think-of-the-company-tax-
cut-72198
ABC News (2018). Fact check: Lowering Australia's corporate tax rate. Retrieved from
http://www.abc.net.au/news/2017-10-13/fact-check-wii-australia-be-uncompetitive-on-
company-tax/9033940