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The Australian National University

The potential use of tax incentives for Indigenous businesses on Indigenous land

Working Paper 17 / 2002

Abstract

The purpose of this paper is to examine how effective tax incentives could be in encouraging the development of Indigenous businesses on Indigenous land in Australia.

Within the Australian tax system there already exists a range of incentives. Most of them, however, are for the purpose of encouraging development of mainstream business. They include incentives for farming and mining, building and infrastructure development, research and development, the film industry, environmental protection, and general development through development allowances. Nowhere in the Australian tax system are there incentives directed specifically at encouraging development on Indigenous land.

Some countries do use tax incentives to encourage business development on Indigenous land and in regions of low socioeconomic status. The United States, Canada and Germany, for example, have policies of this type. In the United States there are two types of incentives that are relevant to our discussions:

  • People and businesses on many Native American lands are exempt from United States taxation. In many cases, the exemption arises from the recognition of Indigenous nationhood or early treaty settlements. In most cases, Indigenous groups are able to implement their own tax regime, which can be applied to Indigenous and non-Indigenous businesses on their land. This has allowed the development of a range of businesses that would not have otherwise taken place. Similar policies exist in Canada.
  • The United States federal government has established a new program called the Empowerment Zone and Enterprise Community Program (EZ/EC Program) which operates in both rural and urban areas of low socioeconomic status. This program provides a range of incentives for mainly private enterprise development. They include the creation of new categories of tax exempt bonds for private and institutional lenders, wage and ‘work opportunity’ tax credits (tax offsets), tax benefits for environmental expenditures, and some capital costs able to be deducted for tax purposes in the year of expenditure. There are also other initiatives such as increased grants for certain activities and preferential treatment for certain tenderers for government contracts. This program is well integrated and its approach should be considered by policy-makers in Australia.
ISSN: 
1442 3871
ISBN: 
0 7315 4916 3

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