The Productivity Commission has been asked to review the tax concessions and this week produced a draft report saying: "Tax concessions and payments for residents and businesses in remote Australia are outdated, inequitable and poorly designed."

The commission said the zone tax offset should be abolished.

It said some eligible areas, like Darwin, Cairns and Townsville are no longer remote.

Katherine is classed as being in Zone A of the offset scheme.

Commissioner Jonathan Coppel said on release of the Productivity Commission's draft report on Remote Area Tax Concessions and Payments.

The Commission has called for an overhaul of remote area tax concessions and payments so they are better targeted and fairer.

The Government tasked the Commission to assess the zone tax offset (ZTO), the remote area allowance (RAA) and the fringe benefits tax (FBT) remote area concessions.

As a first step, the Commission held extensive consultations with communities and businesses in remote Australia. It will continue to engage with stakeholders in developing its final report.

The Commission's assessment is that the ZTO should be abolished.

Remote Australia has changed considerably since the ZTO was introduced in 1945.

"More fundamentally, there is no clear role for Government to compensate taxpayers for the disadvantages of life in remote areas. Many ZTO recipients are already compensated by higher remuneration and many enjoy the nature and pace of remote living," Commissioner Jonathan Coppel said.

"The RAA has a legitimate role but needs a refresh," Mr Coppel said.

The RAA is a small top-up for welfare recipients in remote areas, to help cover high living costs.

The majority of recipients are from areas with socioeconomic disadvantage and most do not benefit from the higher wages that apply to many ZTO recipients.

"The RAA boundaries date back to the early 1980s and need updating, and the payment rates are overdue for a review," Mr Coppel said.

FBT was introduced to prevent remuneration 'in kind', such as housing, from being used to lower income tax. But sometimes, remote area tax concessions are needed to make the tax equitable, particularly where there are operational reasons to provide these 'benefits'.

"When we pulled together the evidence we found that the current concessions are overly generous and complex," Commissioner Paul Lindwall said.

"Being broad-based concessions, they are also a blunt tool for regional development and not a cost-effective way to get employees or employers to move to, or invest in, regional areas," he said.

You can find the draft report at www.pc.gov.au/remote-tax and provide feedback by using the submission or brief comments links.

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