The Tax Institute’s director tax policy and technical, Andrew Mills, said the compliance cost of Fringe Benefit Tax is costing businesses an estimated $40 billion.

“That’s a deadweight cost on the economy and 10 per cent of total  tax collections, effectively imposing an additional 10 per cent ‘hidden’ tax on businesses due to the  inefficiencies and complexities within our system,” Mr Millions said at The Tax Summit: Project Reform. 

While costing businesses a lot in compliance, FBT only contributes $4 billion to government revenue or 1 per cent of the total, the tax expert highlighted.  

“This is a system designed in the 1980s that is not fit for the 21st century. For the amount of  revenue raised, the cost and complexity within the system is unjustifiable,” Mr Mills said. 

The tax professional urged the government to phase out the tax into a new regime, although acknowledging that the $4 billion raised in revenue is substantial enough that it can’t be removed altogether. 

“There are many ways we could transition out of FBT and into a new regime. We could  “suspend” FBT for two or three years while the FBT system is redesigned without  suspending tax payments,” Mr Mills said.

The director argued for a more effective system where both salary and non-salary forms of remuneration are subject to income tax in the hands of the employee. 

“A move away from FBT would remove the need to compare the provision of sandwiches to a more substantive meal at the work Christmas party, or otherwise comparing the provision  of a gift hamper or voucher rather than tickets to a sporting event or musical; and that is  before you consider the various elections and exceptions available under the FBT Act,” Mr Mills concluded.