Question 3 (10 Marks: 24 Minutes)

The following is a real-world view case study. Writing in The Australian Financial Review Jack Mintz states that for investment decisions, taxes matter, and Australia's company tax rate (30 percent) is too high in comparison to other countries, particularly in the increasingly competitive global race to attract capital. As a result, Australia now imposes a higher tax burden on new investments than most countries it competes with. Indeed, over the past two decades, the average company tax rate in the OECD has fallen from 32.5 percent in 2000 to 23.9 percent in 2018. Since 2000, the British rate has fallen from 30 percent; the Republic of Ireland reduced its corporate tax rate from 32.5 percent to 12.5 percent in 1999; and finally, the USA decreased its tax rate from 35 percent to 21 percent in 2018.

So why have certain countries decided to reduce their company tax rates? Apart from encouraging additional investment, it results in faster adoption of new technologies. It means that businesses are more cost competitive to export their products and compete with imports.

Reference:

Mintz, J. (2016) 'Regressive company tax is well above world rates', The Australian Financial Review, 39. Mar 29, ISSN 04042018.

REQUIRED

3.1 Should low tax rates be the sole concern of businesses engaging in capital investments? List some other important factors. (7)

3.2 Should a company consider evaluating investments based on different tax rates, assuming all other factors are equal?