Small businesses are being affected disproportionately by state taxes, according to the State Business Tax Calculator released by the Institute of Public Affairs today.
The calculator reveals transaction-based business taxes at the state level with relatively low thresholds disproportionately affect smaller business.
Victoria is the lowest taxing state for business, with the percentage of corporate income tax liabilities of 17.7% and an average state business taxes and fees payment of $280,978.
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Victoria is closely followed by Western Australia, with the same percentage rate and an average payment of $281,170, while Northern Territory is the lowest taxing territory, sitting at 14.7% or an average payment of $232,974.
The Australian Capital Territory slugs business with the highest level of taxes, with a business on average being expected to pay $309,810 in state business taxes and fees with corporate income taxation liability of 19.5%.
Queensland’s percentage of corporate income taxation liability is 18.1% or an average payment of $287,219, New South Wales is 18.5% at an average of $293,374, South Australia is 19.4% at an average of $308,254, and Tasmania is 18.7%, an average of $297,392.
Julie Novak, senior fellow at the Institute of Public Affairs and author of the State Business Tax Calculator, told SmartCompany state business taxes impede efficiency, which constrains business growth and the development of Australia’s market-based economy.
She says the states’ tax rates are the result of deliberate tax policies by the different states and territories.
“For example, Tasmania this financial year has introduced an increase in conveyance duties and other stamp duties, it has increased tax burdens,” she says.
“The major driver of interstate tax difference is property tax levels. The Northern Territory imposes no land taxes but the ACT government has high levels of property taxation.
“Property taxation poses a significant economic problem as it opposes mobility between the states; property taxation is the key tax to be targeted for abolition in the long run,” she says.
Novak warns the myriad of taxes levied by state governments can make it difficult for busy business owners and managers to understand their liabilities.
This is especially the case when government change tax rates and bases or when businesses grow in size, affecting their tax liability levels.
“It can be particularly difficult for smaller business to appreciate how seemingly minute variations in state tax structures could yield significant variations in liability,” she says.
Novak says transaction-based business taxes at the state level with relatively low thresholds that disproportionately affect smaller and medium size businesses are also a target.
“[Transaction-based business taxes] then affect small businesses’ capacity to acquire capital, labour and material to expand,” she says.
However, Novak says there is not a high level of tax burden associated with small business because major taxes like payroll tax are geared towards businesses with high levels of employment.
“Tasmania and the ACT impose stamp duty on relatively low transactions like motor vehicles but small businesses are largely exempt from these taxes and as they grow they are likely to encounter more taxes,” she says.
Novak says the Business Tax Calculator shows the location of a business can have a significant impact on tax paid.
“It is pretty clear on an annual basis that there is a substantial level of interstate migration and that can be influenced by a whole range of factors and a difference in tax levels in one factor,” she says.
“For an average, medium-size business, there are potential savings of thousands of dollars depending on where it is located.”