AIMING to improve the fairness and integrity of the tax system, the Federal Budget 2011-12 will result in changes to the fringe benefits tax (FBT), removing the incentive for people to drive their car further in order to obtain a larger tax concession.
The National Transport Commission (NTC) welcomed the announcement, with NTC Chief Executive Nick Dimopoulos saying that the NTC had been calling for a review of vehicle-related fringe benefit tax concessions.
"Reforms such as these are necessary if we want to move Australia to a low carbon economy and encourage more environmentally friendly travel," Mr Dimopoulos said.
The changes to the FBT will remove the sliding scale taxation system that was dependent on the number of kilometres travelled, encouraging people to drive their employer-provided cars more in order to receive larger tax concessions.
Under the system, vehicles that travelled less than 15,000 kilometres attracted a 26 per cent FBT liability, 20 per cent for 15,000-24,999 kilometres, 11 per cent for 25,000-40,000 kilometres and 7 per cent for over 40,000 kilometres travelled.
The new FBT system will consist of a flat 20 per cent rate, to be phased in gradually over the coming years. The new system will apply only to new contracts signed after 10 May 2011.
"The current fringe benefit tax structure undermines Australia's commitment to lowering greenhouse gas emissions and generates more congestion on our roads," said Mr Dimopoulos.
"The introduction of a flat rate of 20 per cent to the fringe benefits tax rules is a sensible move as it removes the incentive for drivers of company cars to drive further just to get a larger tax break."
The Australian Conservation Foundation (ACF) also welcomed the changes, saying the FBT reforms would save taxpayers money and reduce pollution.
"This subsidy has been a virtual pollution factory, encouraging excessive use of company cars; reforming it will cut as much pollution as closing a small coal fired power station and will save taxpayers $ 1 billion a year," said ACF executive director Don Henry.
However, the group called on the government to review other subsidies that promote fossil fuel use and wasteful consumption.
The Federal Chamber of Automotive Industries (FCAI), the peak body representing the Australian automotive industry, said it accepted the government's move to introduce a flat rate for FBT on motor vehicles.
"The industry acknowledges that the existing approach, using a kilometre-based threshold, is out of date and is inconsistent with the goal of reducing carbon emissions from motor vehicles", FCAI Chief Executive Andrew McKellar said.
However, the FCAI has said that it will need to make a full assessment of the impact of the changes to the FBT.