The Productivity Commission has recommended the abolition of special zone tax offset concessions for residents on the West Coast, King Island and Flinders Island.
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The recommendation, however, has been swiftly dismissed by the federal government as have other recommended changes to the remote area allowance and the fringe benefits tax for businesses in remote areas.
The tax offset concession allows a person to claim up to $300 for compensate for the higher costs of living in a remote area.
The commission in its final report on the review of tax concessions and allowances said there was no compelling justification for a zone tax offset in modern Australia.
"Higher living costs or other aspects of life in remote areas do not warrant compensation through the tax system," it said.
"Australians face a range of advantages and disadvantages in where they live, and can typically decide to live in the area they value most highly.
"Attempts by governments to create an artificial advantage for a remote community, or to attract people to live in high cost areas through tax concessions, are unlikely to be effective and typically result in net losses to the broader Australian community."
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The commission said there was no case for the government to provide company tax offsets for businesses in remote areas.
"Governments should focus on creating an environment for businesses to succeed without regard to location," it said.
Less than 1 per cent of remote area allowance recipients live in Tasmania - on King Island and Flinders Island.
Fifty-five per cent live in Northern Territory.
The commission said there were anomalies in the boundaries for eligibility for this allowance as there was with tax offsets.
It said areas such as the West Coast were classified as very remote or remote by the Australian Bureau of Statistics but were not eligible for the remote area allowance.
West Coast mayor Phil Vickers said it was pleasing to see the government was unwilling to axe the remote area tax offset concessions.
But he said expansion of the remote area allowance to West Coast residents should be considered.
"While it can be argued that we are no longer as isolated as we were 20 years ago, we are still 150 kilometres away from our main service centre of Burnie," Cr Vickers said.
"And while we're not as island, we are in the same ballpark as King and Flinders Island."
