In a pre-budget submission, the FSC argued that a more competitive withholding tax regime would make Australia more competitive, as per the recommendations of the 2009 Johnson Review.
FSC director of policy Andrew Bragg said "significant tax and policy changes" are required to allow the financial services sector to deliver "growth, jobs and new sources of tax collection as the economy transitions".
"To boost growth, investment and employment, Australian financial services providers must be allowed to compete in the Asian region for new investors," Mr Bragg added.
Australia's taxation regime for foreign investors is "complicated", with different rates or withholding tax applied to the type of income received by investors, he said.
"This is confusing, uncompetitive and needs to be swept away for the implementation of the Asia Region Funds Passport in 2017," Mr Bragg said.
"The FSC has recommended the government reduce the withholding tax rate for passport funds from 15 per cent to five per cent in the 2016-17 budget," he continued.
A report by KPMG comparing the tax treatment of investors in different Asian jurisdictions recommended that all withholding tax be abolished at the fund level for Passport funds.
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