Research Project For Corporate Tax, GST, And Income Taxes

Introduction:

Discuss about the Research Project for Corporate Tax, GST and Income Taxes.

Tax is necessary for state income since it is imposed by the legislature on the workers and business benefits. It is added to the cost of certain goods and services. There are numerous forms of taxes in Australia namely the corporate tax, GST and income taxes. Individuals and companies that are carrying on the business or performing jobs are required to pay taxes and forms the source of revenue for Australia. Taxes are usually collected for the welfare of the country and nations development (Agell, et al., 2016). There are numerous instances of tax lower taxation remains uncalled and income taxes is viewed as the most important source of levy in Australia collected by the government though ATO.

There are instances of higher rate of taxation prevails in Australia. The project would be explaining the relation between the net profit and its legal outcomes and impact of taxation on the banks. The project would assess to provide whether there prevails any correlation between the taxation and net income in Australia through ATO. The project would take into the consideration the net income and taxes paid by the company for analysis.

The report is based on analysing the impact of the net profit and taxation between the banks. The research would be providing the methods of the through which banks usually reduces their tax liability and would assess the impact on the net incomes. The research would also focus on the net profitability and the taxation that ultimately plays an important role in the leverage of the banks.  

The aims and objective of the project is to identify the lawful outcomes of taxation for the banks.

• Determining the necessary techniques through which banks can reduces taxes
• Identifying the impact of the tax paid on net income of the companies  
• Recognizing the adequate strategies through which the government can and companies can solve the problems of higher taxes.

The particular projects aim to provide answer of the following research questions:

• A lowering of taxes results in increase in the profit of the banks?
• What are the impact of taxes paid on the net income of the banks?
• What are the appropriate strategies through which the government can solve the problems of higher? 

The literature arguably puts forward that the factors that determines the liabilities of banks leverage are the determinants of the leverage and liabilities structure (Célérier et al. 2018). It is worth mentioning that the special features of the banks enables them to select the higher leverage than the non-financial firms, while taxes pays the important role in the leverage of the banks and its net profitability. The current literature places its focus on the net profitability and the taxation that ultimately plays an important role in the leverage of the banks. According to the words of Gambacorta & Shin, (2016) tax discrimination between the net profit funds leads to better capitalization of the banks.

Justification of the Project:

According to the statement stated by De Jonghe et al., (2016) variations in the taxes of the government creates an impact on the tax treatment of both the banks debt and equity created by upon the introduction of the tax shield for the equity and lowering the differences between the net profit and taxation of the bank’s capital ratios. This is in line with the tax treatment of net profit on in Australian banks. The research conducted by the Leeper, (2016) states that the effects of the taxes on the net profit as well as on the capital structure of the banks is associated with employing exogenous regional and time variations. This represents the variations in the rate of taxation creates an impact on the profitability as well as the leverage of the banks.

The effects of taxes is particularly larger in the slower growing banks. According to the evidences that has been obtained by the Goodspeed, (2014) states that the changes in the rate of taxation creates an impact on the profitability of banks. Additionally it also shows that the banks are constrained by the regularity of the capital that does not changes with the changes in the rate of taxation (Horváth et al., 2015).

Literature evidently provides that the changes in the rate of taxation significantly creates an impact on the profitability of banks structure of liability. According to the Stiglitz & Rosengard, (2015) changes in the taxes results in an influence on the cost of non-equity funding and banks structure of investments. The increase in the net profit of the banks is associated with the tax rates of the banks.   

The research project is entirely reliant on the analysis of the secondary resources that are available online. The main source of collecting the data is annual reports of the companies. The data is collected based on the secondary sources. The nature of the data that would be collected is entirely descriptive and qualitative in order to answer the research questions. The data that would be gathered would be based from the government sites, literary review that would be fully descriptive and qualitative to provide answer to the research questions. 

All the data that would be gathered through the literary review and the annual reports of the banks which would be combined and analysed together with the required sources of information based on the taxation and net profits.  Furthermore, the data that would be entered into the excel sheets for additional analysis will be based on the dependent variable which is the net income while the independent variable would be based on the taxation to find out the mean, correlation coefficient and regression values.      

Aims and Research Questions:

The computed value of mean for net profit stands $4544.40 million while the standard deviation stands $2383.73 million. The standard deviation is found to be greater than mean and the profit of the companies are scattered and are not close to average profit. On the other hand, the mean value for the taxation stands $6.6.40 million while the standard deviation of the taxation stands $542.370 million.

Table 1: Descriptive Statistics

The correlation co-efficient of NAB between the net profit and taxation stands 0.463 which signifies that the relationship is moderately positive.  

The correlation co-efficient of Westpac between the net profit and taxation stands 0.904 which signifies that the relationship is highly positive. However, AMP correlation co-efficient stood negatively at 0.247 which signifies that a weak negative relationship. It can be stated that AMP has performed poorly. It can be interpreted that the relationship between the profit and taxation is very strong. With the rise in taxes the net income of the company would also rise. The extent of increase cannot be ascertained from the correlation analysis. Therefore, to establish the relationship between net profit and taxation the regression has been performed.  

Table 2: Correlation Co-Efficient

The R-Square value that is derived stands 0.001 which indicates that there is no significant relationship between the net profit and taxation. The independent variable (Taxation) can explain 0.1% of the variability in the dependent variable (Net Profit). The ANOVA table provides that the significance value is higher than the level of significance (0.05). So an interpretation can be made by stating that there is no significant relationship is existence between the net profit and the taxation.

With the increase in one unit of the taxation value the profit increases by 0.003. 

Based upon the regression output, the regression equation is obtained as 

The necessary techniques through which banks can reduces the burden of higher taxation is through reduction the corporate tax rate as this would ultimately help in stabilising the banks (Peters & Panayi, 2016). The research states that reducing the corporate tax rates would promote higher deposits from the customers that would ultimately increase the profitability of the banks (Merrill, 2016). Reduction in the corporate tax rate would help in incentivising the banks by raising their capital by selling the bonds instead of selling the equity.

The payments of debts helps in reducing the amount of corporate taxes that banks have to pay. This would result in more amount of leftover profits for the shareholders. Several researchers have stated this approach as the debt tax shield (Leeper, 2016). This is because the value of tax shield represents the functions of the corporate taxes and the value of the taxes shield goes up with the increase in the corporate taxes (Leeper, 2016). The executives of banks prefer debt on equity since debt magnifies the upside for executive given the banks performs well.  

Literature Review:

The reduction in the tax rates would help in reducing the deferred tax assets with one time taxes on the foreign earnings (Schepens 2016). The reduction the tax rate would help in increased net income for the banks with additional reduction in the deferred tax liabilities along with the taxes that are owed.      

In order to test this hypothesis, the regression test is carried out. As evident from the results of the regression analysis it is found that the significance value is lower than the level of significance (0.05). Therefore, it can be stated that the hypothesis stated is rejected and significance relationship between the net profit and taxation exists. The net income forms the quicker reflector of the financial health of the corporate banks. While the taxation represents the net profit that is available to the banks. The managers and the investors usually gauge into the effects that taxes possess on the profits of the company. If the banks pay a significant amount of taxes, then the management might look for the ways of reducing the payment of taxes.    

The strategies through which the government can reduces the taxes is by offering tax cuts for the banks. The government can provide the Australian banks with the wide range of tax deductions, credits and exemptions on yields that varies with the rate of taxation and across different forms of income (Hirtle, 2014). Reducing the complexity in the tax code would help in reducing the administrative waste and improving the resources of the banks and would make easy for banks to administer the effective tax policy.

The methods of tax cuts would provide the banks with the stimulus and would also help in promoting the stability as well as the flexibility Faccio & Xu, (2015). Banks that wants to attract more consumer deposits can use the government tax cuts for the purpose of raising deposits while banks that wants to save more can use the purchase the new government bonds.  

Conclusion:  

The aims of this research was to assess the relationship between the taxation and the net income. The research questions were specifically framed to particularly address the aims. The first questions are determining the necessary techniques through which banks can reduce their tax liability. The results represent that the majority of the 90% of the banks reports taxes in accordance with the net income while there are 10% of the companies that avoids the taxes.

Methodology:

The second question is about identifying the impact of the tax paid on net income of the banks. As evident from the results of the regression analysis it is found that the significance value is lower than the level of significance (0.05). Therefore, it can be stated that the hypothesis stated is rejected and significance relationship between the net profit and taxation exists.

The third question is based on the determining the adequate strategies through which the government can solve the problems of higher taxation. The results obtained suggest that the government can solve the problems of tax higher taxation by requiring banks to publicly disclosure of the tax affairs. Additionally government can reducing the complexity in the tax code would help in reducing the administrative waste and improving the resources of the banks and would make easy for banks to administer the effective tax policy. 

The first limitation of the research is that the size of samples is small is small and limited to only 4 banks. It is better that the number of the banks should be increased to 20 private and government banks which would be helpful in providing a better picture of the taxation and net income.  

The second limitation is that variable such as profit before taxes and finance costs are not considered while the analysis has only been limited to the ASX listed banks. The research could have been extended to the international banks as well. It is good to consider that the research project was focused on the Australian banks and not generalised to other regions.

The subsection would identify the recommendations for the managers and government as well as for the researchers.

As the research project concludes there are significant relationship between the net profit and the taxation. This implies that the probable investors may seek more sustainable information.

The findings suggest that taxation and net income are positively related. As evident from the analysis profitability and the net income are positively related. The studies are related to the ASX listed banks and it is recommended that the government of Australia should reduce the level of corporate taxation and should provide the banks with the tax rebates and tax allowance. 

Reference: 

Agell, J., Englund, P. & Södersten, J., (2016). Incentives and redistribution in the welfare state: The Swedish tax reform. Springer.

AMP Ltd. – AnnualReports.com. (2018). Retrieved from https://www.annualreports.com/Company/amp-ltd

Annual reports | Westpac. (2018). Retrieved from https://www.westpac.com.au/about-westpac/investor-centre/financial-information/annual-reports/

Annual reports. (2018). Retrieved from https://www.nab.com.au/about-us/shareholder-centre/financial-disclosuresandreporting/annual-reports-and-presentations

Bank, B. (2018). Bendigo and Adelaide Bank – Financial Results. Retrieved from https://www.bendigoadelaide.com.au/shareholders/financial_results.asp

Cannas, G., Cariboni, J., Marchesi, M., Nicodème, G., Giudici, M. P., & Zedda, S. (2014). 10 Financial Activities Taxes, Bank Levies, and Systemic Risk. Taxation and Regulation of the Financial Sector, 203.

Célérier, C., Kick, T.K. & Ongena, S., (2018). Taxing Bank Leverage: The Effects on Bank Capital Structure, Credit Supply and Risk-Taking.

De Jonghe, O., Dewachter, H. & Ongena, S., (2016). Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions (No. 303). Working Paper Research.

Faccio, M., & Xu, J. (2015). Taxes and capital structure. Journal of Financial and Quantitative Analysis, 50(3), 277-300.

Gambacorta, L. & Shin, H.S., (2016). Why bank capital matters for monetary policy. Journal of Financial Intermediation.

Goodspeed, T.J., (2014). Some Simple Analytics of the Taxation of Banks as Corporations.

Han, J., Park, K., & Pennacchi, G. (2015). Corporate taxes and securitization. The Journal of Finance, 70(3), 1287-1321.

Hirtle, B., 2014. Bank holding company dividends and repurchases during the financial crisis. Federal Reserve Bank of New York Staff Reports, no. 666.

Horváth, B.L., Huizinga, H. & Ioannidou, V., (2015). Determinants and valuation effects of the home bias in European banks’ sovereign debt portfolios.

Leeper, E. M. (2016). Why central banks should care about fiscal rules. Sveriges Riksbank Economic Review, 3, 109-125.

Leeper, E.M., (2016). Why central banks should care about fiscal rules. Sveriges Riksbank Economic Review, 3, pp.109-125.

Merrill, P., (2016). Taxation and Regulation of the Financial Sector. National Tax Journal, 69(3), p.733.

Natocheeva, N. N., Rusanov, Y. Y., Belyanchikova, T. V., & Ter-Karapetov, R. A. (2016). Defining efficiency of ensuring the credit safety of a commercial bank. Journal of Internet Banking and Commerce, 21(S6), 1.

Peters, G.W. & Panayi, E., (2016). Understanding modern banking ledgers through blockchain technologies: Future of transaction processing and smart contracts on the internet of money. In Banking Beyond Banks and Money (pp. 239-278). Springer, Cham.

Schepens, G., 2016. Taxes and bank capital structure. Journal of Financial Economics, 120(3), pp.585-600.

Stiglitz, J.E. & Rosengard, J.K., (2015). Economics of the Public Sector: Fourth International Student Edition. WW Norton & Company.

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