Exporters often seem to be able to pay less tax than other businesses. One of the key reasons for this is that exporters pay no GST on their exports despite benefiting from government expenditure on things things like education and various forms of assistance to industry including assistance that is specific to export industries.
This post asks whether it is about time to start charging the GST on at least some exports.
In a previous post it was suggested that we should get rid of the company tax and make up for the lost revenue by increasing the GST. Among other things, getting rid of company tax would eliminate the considerable company tax administration costs without increasing the cost of administering the GST. It was also suggested in this post that further simplifications could be made by removing some of the current exceptions to the GST including the rules that allow exporters to avoid paying the GST.
Forcing exporters to pay the GST is not essential to the proposal to get rid of company tax. However, for some odd reason some exporters were strongly opposed to the idea of paying the GST on exports. However, allowing exporters to avoid paying the GST is significantly reducing government revenue and distorting the economy by disadvantaging businesses that compete against imports. For this reason I have moved the exporter GST issue to this post.
In addition to not having to pay the GST on exports some exporters minimize corporate taxes by using strategies that are not available to non-exporters such as selling the export at a low price to a subsidiary in a low taxing country.
The arguments in favour of putting the GST on exporters include:
- The GST is a difficult tax to avoid.
- Too many exporters are able to minimize Australian taxes by managing their affairs so their “profits” are made in some country other than Australia. It is much harder for companies competing against imported goods and services to do so.
- Charging the GST on exports will reduce the value of the $Aus. Reducing the value of the $Aus will make it easier for companies producing goods and services in Australia to compete in both Australian and overseas markets. (The mining export boom drove up the value of the $Aus to the point where Australian manufacturing was damaged.)
- If raising the GST allows the company tax to be abolished it doesn’t seem unfair that exporters pay enough GST to pay for the reduction in company tax.
The arguments against include:
- Some exporting companies will struggle to compete despite the effect on the $Aus.
- The GST is a regressive tax just like the company tax and most government charges.
Charging at least some GST on exports should be seriously considered either on its own or as part of a plan to eliminate the company tax.