| 27 April, 1999 Ref: LRBT15APR.OK
The Secretary,
Review of Business Taxation,
Department of the Treasury,
Parkes Place,
CANBERRA ACT 2600
Dear Sir,
Re: Submission to the Review of Business Taxation
Thank you for the opportunity of responding to the "A Platform for
Consultation" discussion paper on Business taxation.
Attached please find our detailed submission. In brief, it states that we support a 30%
company tax rate but request serious consideration of the following:
1. Fringe Benefits Tax (FBT) should remain payable by the employer. However it should
not be calculated using the highest marginal rate, but should use the proposed 41.5%
marginal rate payable by people in the $50,000-$75,000 income bracket.
2. The proposed changes to the FBT statutory rates should not proceed, on equity,
industry policy and other grounds. These changes will undermine vehicle sales to fleets,
which provide the critical volume necessary for the survival of local manufacture in
Australia. The proposed statutory rates significantly increase the FBT payable, thereby
discouraging the employer from providing vehicles for their employees.
3. The depreciation limit is not relevant in an environment where FBT is based upon the
capital value of the vehicle. We believe this limit should be removed without any linkage
to changes to the Statutory Rate formula.
For further information, please contact John Egan (03 9647 4745) or Paul Smith (03 9647
8465).
Yours sincerely,
O. Komori,
PRESIDENT
encls.
TOYOTA AUSTRALIA’s RESPONSE TO
THE
REVIEW OF BUSINESS TAXATION DISCUSSION PAPER
"A Platform For Consultation (APFC)"
Toyota Australia is a member of the
Federal Chamber of Automotive Industries (FCAI) and fully supports the response submitted
by that organisation.
In summary, we support the proposal to reduce company tax to 30% but
have serious concerns with some other changes, especially the change to Fringe Benefits
Tax ("FBT") on vehicles.
(1) BACKGROUND TO TOYOTA AUSTRALIA
Toyota Australia directly employs 4,300 people and its dealer and
supplier networks employ many thousands more.
In 1998 it built over 100,000 vehicles, 31,000 of which were exported.
It has a major direct impact on the Australian business community, purchasing $900 million
worth of components and services locally.
Toyota’s investment in Australia has grown to nearly $800 million,
including the modern Altona plant which was commissioned in 1995. Next year Toyota will
further recognise the needs of Australian motorists by launching a new Australian built
large car.
(2) ISSUES OF CONCERN TO TOYOTA.
Toyota would like to comment on the following issues raised in the
"A Platform For Consultation" (APFC).
(2.1) FBT on vehicles.
(2.1.1) Replacement of employer tax liability with employee tax liability.
(2.1.2) Proposed changes to the statutory rates applying to FBT on cars.
(2.2) Depreciation limit on vehicles.
Of these issues our major concern is the proposed changes to FBT on
vehicles.
(2.1) FBT On Vehicles
We believe that the Australian automotive industry in particular
and the Australian manufacturing industry indirectly will be severely impacted by the
proposals in this paper.
These proposals put at risk the current industry structure where
local manufacturers are highly dependent on sales to company fleets to achieve critical
volumes. The current arrangements generate $1.5 billion in FBT, support local industry,
and provide private buyers access to late model used vehicles, with associated advantages
to the environment and safety.
(2.1.1) Replacement of employer FBT tax liability with employee
tax liability
This proposal would allow the benefit to be taxed at the marginal rate
of the employee, not at the highest marginal rate of 48.5%, as currently occurs with FBT.
We believe that the use of the top marginal rate is clearly inequitable, but believe that
the quesiton of equity is resolved in a more simple way by lowering the tax rate used in
calculating the FBT. The continued use of the top marginal rate of 48.5% is not justified
when:
i) The company tax rate is proposed to fall to 30%.
ii) 81% of taxpayers will have a marginal rate of 31.5%.
iii) The marginal rate for the $50,000-$75,000 bracket is falling from 48.5% to 41.5%.
Thus we support the rejection of this APFC proposal by the Federal
Treasurer but request that the rate used in calculating FBT be reduced to the marginal tax
rate of the $50,000-$75,000 income level ie 41.5%.
It is noted that leaving FBT payment in the hands of the employer
results in an overtaxing of $435 million (pg 775). This alone should be adequate
justification for reducing the FBT to 41.5%, instead of making the benefit taxable in the
hands of the employee.
(2.1.2) Proposed change to the statutory rates applying to FBT on
cars
The taxable value of private usage of a motor vehicle is calculated
using statutory rates that recognise that the vehicle has both private and business uses.
We strongly oppose any change to these statutory rates, on the grounds
of a) equity, b) industry policy and c) other related issues.
(a) Equity
The APFC calculates that the benefit of a company vehicle is currently
taxed at 34%, ie higher than the proposed company tax rate of 30% and higher than the
proposed marginal tax rate of 81% of the Australian population. APFC acknowledges that
"If a statutory formula is to be used by a large proportion of relevant taxpayers, it
needs to err somewhat in favour of the taxpayer in order to be used" (pg 785).
The calculation of the 34% current tax rate on vehicles will change
when GST is introduced. The APFC report uses a "gross up" factor of 1.9417. Our
understanding is that this "gross up" factor will increase with GST to 2.129,
thereby increasing the current tax rate to 37.3% (34% x 2.129/1.9417). This increase in
tax is a further reason in support of our request that the tax rate used in the FBT
calculation should be reduced.
The APFC document claims that "the best way to promote efficient
decisions about fringe benefits is to ensure that tax does not distort the relative costs
faced by the decision makers." (pg 778). In other words to achieve the stated
objective, the APFC proposals should give an employer an equal cost in providing a benefit
in the form of a car or as a taxable allowance on top of the base salary.
In order to test FBT on vehicles under the various tax regimes against
this criteria, we commissioned KPMG to develop a model giving indicative costs to the
employer of providing an equal benefit to the employee through (a) taxable allowance or
(b) a company car. In reviewing the APFC proposals we have analysed "Statutory
Formula Scale 1".
This analysis suggests that the move to a GST and lower marginal
income tax rates under ANTS has already eliminated some or all of the benefits of a
company provided car, and that the APFC proposals sharply erode or eliminate the remaining
benefits of company cars. As an example, consider a typical company provided
vehicle such as a Toyota Camry V6 Conquest automatic which does 20,000 km per year, 70% of
which is private usage.
Under the proposed GST/2002 regime (including input credits) there will
be a minor benefit of $1,367 to the employer of providing a car instead of an allowance.
Under the APFC proposal this will change to a DISADVANTAGE of ($1,625) in providing a car.
The following graphs show the changes for varying degrees of private
usage.
ADVANTAGE/(DISADVANTAGE) TO EMPLOYER
OF PROVIDING COMPANY CAR VS TAXABLE ALLOWANCE:
Based on Toyota Camry Conquest V6 Auto 20,000km p.a. $50,000 Income
We would also like to strongly emphasise two
additional points:
1) APFC "Statutory Formula Scale 1" proposes that the
statutory rate should increase as the mileage increases, contrary to the current regime
which assumes that as the annual mileage increases, the proportion of the miles used for
business purposes will increase. In other words, APFC is proposing that the more a vehicle
is a tool of trade, the greater the tax imposition.
The current approach appears more rational. As the statutory rate is
applied to the capital cost of the car, the rate should fall to reflect a greater use of
the vehicle for business use. If a vehicle is more heavily used for business it is logical
that a smaller proportion of the capital cost is being used to give a private benefit. Thus
we believe that the APFC proposal to increase statutory rates with the mileage travelled
is not appropriate.
2) The cost of giving a car as a fringe benefit is already inflated
by state government charges such as workers compensation and payroll tax. This results in
the cost to the employer of providing a car being inflated by around 9.5% of the taxable
value of the benefit. This should be included in any consideration of the equity of FBT.
(b) Industry Policy
The automotive industry is a major contributor to
the Australian economy through its direct employment, rapidly growing exports, and flow on
impact on employment and technology transfers to the rest of the economy.
Australian automotive manufacturers are moving towards being
competitive in the global automotive markets. However they are heavily dependent on
domestic fleet sales to provide the core domestic volumes necessary to support export
growth. Sales to company fleets are essential in obtaining this critical volume. This
fleet market is already heavily taxed, providing half of all FBT collected. Further tax
impositions have the potential to seriously reduce fleet sales, thereby reducing the
critical volumes available to local manufacturers.
| |
MANUFACTURER |
PROPORTION
OF LOCALLY MANUFACTURED CARS GOING TO BUSINESS FLEET (1998)
SOURCE VFACTS |
| |
Ford |
40.2% |
| |
Holden |
40.3% |
| |
Mitsubishi |
47.9% |
| |
Toyota |
25.9% |
| |
Average Of Local Manufacturers |
37.6% |
Sales to business made up more than one in every three passenger vehicles built and
sold in Australia in 1998 and more than one in four of all cars sold in Australia. An
added tax impost on companies using these vehicles will inevitably reduce sales, causing
both direct and indirect impacts on employment and investment in this industry. This
taxation increase will disproportionately affect locally manufactured vehicles due to
their fleet dependency.
Note that the import share has already moved from 19% (1988) to 52.7% (1998). Further
taxation of fleet (which is predominantly locally made), will increase the import
penetration at the cost of locally made product, with consequent impact on the Current
Account Deficit.
We have not yet been able to quantify the impact on sales of vehicles to business.
However it will be quite significant as the APFC proposals significantly reduces the
attractiveness to the employer providing a vehicle rather than a taxable allowance.
The following chart shows the true impact of the APFC proposals, by showing how the
advantage/(disadvantage) changes between GST 2002 and GST APFC. For example:
| |
CAMRY V6
AUTO
$50,000 INCOME |
ADVANTAGE/(DISADVANTAGE)
$ |
| |
KM p.a. |
GST 2002 |
GST APFC |
Total
Difference |
| |
12,000 |
(1,115) |
(816) |
299 |
| |
20,000 |
1,367 |
(1,625) |
(2,992) |
| |
32,000 |
5,090 |
(2,091) |
(7,181) |
| |
50,000 |
7,831 |
(546) |
(8,377) |
We do not believe that the drop in fleet sales will be offset by an increase in private
purchasers. Private buyers tend to keep their vehicles significantly longer, so dramatic
drops in the total market can be expected. This will not only have the impact mentioned
above but will directly reduce the tax collected on vehicles. Thus one of the key
objectives of the APFC of revenue neutrality will not be achieved.
(c) Other Issues Relating To FBT
i) Inflation impact
The impact of the APFC is such that the vehicle cost to the employer will be higher
than under the current tax regime.
Cost to employer of providing a vehicle (Camry Conquest V6 Auto 20,000km, 85% private
use):
| NOW |
GST/2002 |
GST/APFC |
| $17,783 |
$15,177 |
$18,169 |
Thus the expected cost down due to the replacement of Wholesale Sales Tax with GST
is lost under the APFC proposal, and the cost will actually go up slightly. This may have
a significant impact on the government’s projected inflation impact of GST
introduction. The government has assumed a substantial reduction in motoring costs, but
the impact of APFC proposals would appear to negate this for business users.
ii)Administrative Complexity
The APFC proposals will encourage the replacement of company vehicles by cash
allowances. Extensive administration of these allowances will be required to ensure both
efficiency and equity. This will add further administration complexity.
Also, many companies are locked into the current arrangements with their staff. Where
companies are unable to replace these arrangements, they will be penalised by the APFC
proposals.
(2.2) Depreciation Limit On Vehicles
We support the FCAI ongoing position that the depreciation limit on motor vehicles has
not been relevant since the introduction of FBT in 1986, which was based on the capital
value of the vehicle.
The original intention of the depreciation limit on motor vehicles, when first
introduced during 1974, was to remove the perceived advantage which was afforded to
businesses which purchased luxury vehicles.
However as stated, the introduction of the FBT legislation during 1986 effectively has
eliminated any business advantage ever since. Thus we believe this limit should be removed
without any linkage to changes to the Statutory Rate formula.
(3) SUMMARY
Toyota supports the proposed change to a 30% company tax rate, but requests that
serious consideration be given to the following points:
4. Fringe Benefits Tax (FBT) should remain payable by the employer. However it should
not be calculated using the highest marginal rate, but should use the proposed 41.5%
marginal rate payable by people in the $50,000-$75,000 income bracket.
5. The proposed changes to the FBT statutory rates should not proceed, on equity,
industry policy and other grounds. These changes will undermine vehicle sales to fleets,
which provide the critical volume necessary for the survival of local manufacturer in
Australia. The proposed statutory rates significantly increase the FBT payable, thereby
discouraging the employer from providing vehicles for their employees.
6. The depreciation limit is not relevant in an environment where FBT is based upon the
capital value of the vehicle. We believe this limit should be removed without any linkage
to changes to the Statutory Rate formula.
For further information, please contact
John Egan, (03 9647 4745) or
Paul Smith (03 9647 8465)
|
