The commission argues the context for remote area tax concessions has changed considerably since the first concession was introduced in 1945.

In a report released on Wednesday, it says technological advances have helped lessen the difficulties of life in remote parts of Australia.

"Some communities once considered isolated - such as Cairns and Darwin - are now well developed, internationally-connected cities, " it says.

"Their residents can no longer be considered isolated."

Senator McDonald was highly critical of the report that recommends abolishing zone tax offsets for people and businesses in remote and regional Australia while taking aim at fringe benefit tax concessions which apply to fuel, accommodation and food provided to employees.

She said such concessions were hugely important to regional Australia and the report shows a "breathtaking lack of understanding of life outside metropolitan areas".

"The report acknowledges the challenges of living and doing business in the regions, but then dismisses the measures in place to offset those challenges," she said in a statement.

"Rather than abolish the offsets, we should be enhancing them."

She said the report states tax policy doesn't do much to attract people to live in regional Australia.

"Rather than suggesting measures such as raising the concession or cutting fuel excise, it simply recommends cutting it completely," she said.

Assistant Treasurer Michael Sukkar was quick to put Senator McDonald's mind at ease.

He said the commission's recommendations would result in "significant disruption" to existing arrangements if implemented.

"Given the challenges faced by regional Australia, including as a result of the impacts of the recent drought, bushfires and now coronavirus, the government will not be acting on the Productivity Commission's recommendations," he said in a statement.

Australian Associated Press