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16 April 2015

Company tax rate for some fuels uncertainty for others



The prospect of a "two-tier" company tax system flagged by Prime Minister Tony Abbott has fuelled confusion over who will pay what and threatens to undermine any political gain for the government arising from the announcement.

Mr Abbott told big business on Wednesday that a planned special levy placed on them of 1.5 per cent to fund his paid parental leave scheme would now not be needed because the scheme had been dumped.

That was music to the ears of the big end of town, which had strongly opposed the PPL scheme as extravagant, unaffordable and in some cases a double hit to the corporate sector. That is because many of the biggest firms already run their own parental leave schemes in order to retain skilled employees rather than have them leave the workforce once they have children, or go to employers offering better conditions.

But the bad news from Canberra was not far away: there will be no net taxation gain for larger enterprises because what was to be an across-the-board 1.5 per cent reduction to the 30 per cent rate for businesses, will now be quarantined to small businesses, which will also get other unspecified benefits aimed at easing the cost and administrative burdens for small employers.

The result is that big business - which would have been given the cut and then lost the benefit immediately because of the PPL levy - will now simply not get the cut in the first place, leaving them where they are now: at a company tax rate of 30 cents in the dollar.

Tax specialists have warned the devil of any change will be in the detail to be announced at or just before the May 12 budget.

They say the success of the two-tier arrangement will turn crucially on the cut-off point - the way in which a firm is designated small enough to pay the lower amount of tax.

Australian Chamber of Commerce and Industry chief executive Kate Carnell said: "We welcome the confirmation that small businesses will get a 1.5 per cent tax cut from July 1, but note with concern that larger businesses will still face one of the highest corporate tax rates in the developed world. At 30 per cent, Australia's corporate tax rate compares unfavourably with the OECD average of 25 per cent."

The Australian Industry Group expressed similar mixed feelings, describing the end of the PPL and its levy as "most welcome" but branding the 30 cent company tax rate "uncompetitively high".

"This would have imposed a heavy additional impost on business and would have added significantly to compliance costs for larger businesses," said the Ai Group's chief executive, Innes Willox.

"That said, the decision not to proceed with the cut to the company tax rate announced in last year's budget is a major disappointment for Australian business and a setback to growth, investment and job creation.

"A longer term ambition of a 25 per cent corporate tax rate should be pursued as a key measure to allow Australia to be internationally competitive."

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