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Tax budget slow but positive for funding

Tax budget slow but positive for funding

The Government's announcement that it will phase down Interest Withholding Tax on financial institutions has been welcomed by tax experts.In line with one of the core recommendations of the…

The Government's announcement that it will phase down Interest Withholding Tax on financial institutions has been welcomed by tax experts.

In line with one of the core recommendations of the Johnson Report, the Government will effectively reduce the cost of funding for banks operating in Australia and also for branches and subsidiaries of foreign banks, though at differing rates.

Duncan Baxter, head of taxation at Blake Dawson, told Lawyers Weekly that although the process will be a little slower than they would have liked, it is a positive development nonetheless.

"We would have been looking for this [to be implemented] a bit faster, rather than a phased reduction, but you can understand a degree of caution on the part of the government when there is still a deficit in the budget. It is a step in the right direction," he said.

"The idea that by 2014, the 10 per cent withholding tax will be down to zero in the case of a branch, and 5 per cent in the case of a subsidiary, is really good," he said.

"That ultimately should reduce the cost of borrowing for Australian businesses."

Overall, said Baxter, the new budget in relation to tax has a focus on individuals as opposed to businesses, with a definite move towards phasing out the engagement of individuals in the taxation system by simplifying tax returns, and providing individual tax breaks to encourage investment.

Effectively, Baxter does not expect huge changes.

"In relation to business, a lot of the changes are quite marginal ... and they will take quite a while to work through the system," he said.

"We would not anticipate an enormous amount of difference to our work. The focus of the budget is focused on bringing the economy back and encouraging investment, and of course that is where the Government needs to be very cautious not to discourage people from putting money into Australia."

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