How Companies and Corporations in Australia Are Mandated by Law to Pay a Tax - Coursework Example

Gоvеrnmеnt-Business Rеlаtiоns (Insert Name) (Institution Affiliation) Policy refers to a rule or a basic principle that is used to guide a government or an institution to achieve a certain goal or objective (Acocella, 2005). Any government or institution that is looking forward to achieve a certain objective should come up with policies that will support their objectives (Post & Preston, 2012). Businesses all over the world are affected in one way or the other by different policies put in place by governments (Acocella, 2005). This essay will concentrate on the discussion of how taxation policy issue affect operation of businesses in Australia and New Zealand. The essay will further discuss how these two great countries, Australia and New Zealand address this policy issue. A tax can be defined as a charge that is levied on an individual or an institution by a legal and functioning government. In most cases governments in the world, use taxation as a way of encouraging or discouraging certain economic activities to be undertaken. Tax policy issue affect businesses differently in Australia and New Zealand, either positively or negatively. Taxation policy will definitely affect business cost. For example, when a certain government increases a corporate tax it has the same effect as an increase in costs. Australia has many forms of taxation; taxes are imposed to both individuals as well as companies. It is required that individuals and companies pay taxes to all the level of governments: these are, the local government, the state and the federal government. Individuals in Australia are taxed at the federal level, an income tax. This is done on a progressive basis where people with high income are taxed more and vice versa. Individuals with partnerships are also taxed on the share from the partnership. New Zealand taxes are collected by the Inland Revenue Department on behalf of the government at a national level. Both individuals and companies are taxed on income gained in the country. New Zealand’s tax policy is very clear that it is compulsory to all business ventures with returns to be taxed. This essay will discuss how Companies and Corporations in Australia are mandated by law to pay a tax that is known as a company tax, on all the profits made. When a company doing business in Australia whether a resident or non-resident announces profits made in a particular financial year it is its obligation to make sure that taxes are returned. Company taxation in Australia is calculated at a flat rate of 30%. This applies to both the resident and non-resident company’s. Resident companies are those that are incorporated in Australia while non-resident are foreign companies doing business in Australia. This rate is relatively high compared to a county like New Zealand which charges companies a rate of 28%. Many companies doing business in Australia complain of the 30% as being a very high rate. The companies say this 30% corporate tax is so high and it reduces returns to those investors who have put their money in the business in those countries. On the other hand New Zealand companies and corporation are required by law to pay income tax at a rate of 28% on all the profits gained in a given financial year. New Zealand income tax rate of 28% imposed on companies is quite friendly compared to that of 30% imposed on companies by the Australian government. In Australia it is the responsibility of the federal government to impose a value added tax (VAT) on most goods and services. VAT is levied at a rate of 10% by all the entities that are registered for goods and services tax. The revenue that the Australian government get from this tax is distributed equitable to the states. A number of supplies in Australia are VAT free, and they include; basic foodstuffs, medicine and medical equipment, educational services and exports. When the Australian government introduced this tax system on 01 July 2000, it had its citizen in mind and the government wanted basic commodities to be affordable. Many companies dealing in goods and services a part from the basic once and are registered for GST, are normally forced to include GST in the price they charge customers for those good s and services. This will in one way or the other affect sales of many companies because customers sometimes find those goods and services to be expensive. In the long run the situation will affect the operation of businesses in Australia (Dubin, 2012). In New Zealand, goods and services tax (GST) is a value added tax. This tax is imposed broadly on many goods and services with a few exemptions (Adema & Ladaique, 2005). The exemptions are on donations received, precious metals, and financial services and on rent obtained from residential rental properties (Kawano, & Slemrod, 2012). GST is levied by the government of New Zealand at a rate of 15% and this was introduced from 01 October 2010 (Keen & Lockwood, 2010). A 15% increase in the prices of goods and services is quit a heavy burden to consumers, and if it is imposed on goods and services that are not basic then chances are that consumers will consume less of those goods and services(Pope, 2001). This will equally lead to a drop on sale for all those companies dealing on the said goods and services and in the long run the taxation policy will affect the way business is done in New Zealand (Adema & Ladaique, 2005). Individual working in companies in Australian are subjected to a progressive tax on their income; this is done by income tax being withheld from wages and salaries by employers on behalf of the government and remitted and a particular time (Diewert & Lawrence, 2002). Individual employees who earn more are taxed much more than the ones with less income. Employees who earn below $18200 are exempted from taxation. This taxation policy favours employees with less income the majority, because they would be taxed less but also it is unfavourable to those who earn more (Benge & Holland, 2008). In the long last senior company employees with excellent skills and experience who are the highest earners will start to look for alternative employment outside the country where taxation is favourable. Companies will start experiencing high employee turnover thus their businesses will be affected. Companies will be forced to recruit and train new employees’ therefore incurring recruitment and training cost. In New Zealand individual residents are liable for tax, income levels of individuals determine how much to be taxed (Benge & Holland, 2008). Employees with a higher income are taxed more compared to those employees that earn less. This method of taxation favours employees will less income more than those with high income, because those with a high income remit more tax than the ones with a low income. Comparing these two countries Australia and New Zealand, it can confidently be explained that individuals in New Zealand are subjected to high taxation unlike in Australia. The Australian government is more concerned on the employees not to be taxed more unlike the New Zealand government. The probability is very high that their a high labour turnover in New Zealand than in Australia and therefore the cost of doing business is favourable in Australia than in New Zealand (Saez, Slemrod, & Giertz, 2012). If a country like New Zealand experiences high labour turnover, then there is a possibility that companies in that country are as well affected. These companies will have to incur cost of new staff recruitment and training and this will lead to high costs of doing business in the country and vice versa to Australia where their might not be high employees turnover (Diewert & Lawrence, 2002). In conclusion, Policies by different countries should be made to bring positive effects in those countries. They should be instituted when a government notices negative issue that affect the country and urgently should be dealt with to bring some positive benefits (Freudenberg,T ran-Nam, Karlinsky, & Gupta, 2012) A corporation tax imposed on companies have a negative effect on companies in those countries, it becomes very expensive when companies trickle down the tax effect to consumers (Gale, Brown, & Center, 2013). Investors put their money where they expect to earn the highest returns and investors usually project those returns. Therefore for any organization to get any return the companies must include that in their prices and this lead to high prices and consequently a drop in sales, and in the end affecting business in a negative way (Jarvenpaa, Sirkka, Tiller, 1999). References Acocella, N. (2005). Economic policy in the Age of Globalisation. Cambridge University Press. Adema, W., & Ladaique, M. (2005). Net social expenditure, 2005 edition: More comprehensive measures of social support (No. 29). OECD Publishing. Benge, M., & Holland, D. (2008). Company Taxation in New Zealand. Claus [2010], 289-312. Diewert, W. E., & Lawrence, D. (2002). The deadweight costs of capital taxation in Australia. Efficiency in the Public Sector, 103-167. Dubin, J. A. (2012). State Income Tax Compliance. In The Causes and Consequences of Income Tax Noncompliance (pp. 243-253). Springer New York. Freudenberg, B., Tran-Nam, B., Karlinsky, S., & Gupta, R. (2012, December). A comparative analysis of Tax advisers’ perception of small business tax law Gale, W., Brown, S., & Center, U. B. T. P. (2013). Small Business, Innovation and Tax Policy: A Review. Jarvenpaa, Sirkka L., and E. H. Tiller. (1999). "Integrating market, technology, and policy opportunities in e-business strategy." The Journal of Strategic Information Systems 8.3: 235-249. Kawano, L., & Slemrod, J. (2012). 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