SMEs take a hit from mining tax compromise

The mining sector might be celebrating a compromise with the Government over the Resources Super Profit Tax, but the small and medium business community is unimpressed that a promised 2% cut in the company tax rate has been abandoned.

Under the Government’s original plan, businesses with less than $2 million turnover would enjoy seeing their corporate tax rate fall from 30% to 28% from 2012-13, while companies over this threshold would see their tax rate fall to 29% from 2013-14 and to 28% a year later.

But following the Government’s deal with the mining sector – which will see the headline rate of the super profits tax cut from 40% to 30% – the tax rate will fall to 29% and no further.

However, the Government is pushing ahead with its plan to raise the superannuation guarantee paid by employers from 9% to 12% between July 2013 and July 2019.

This means employers will face a sharp increase in employment costs, without the previous tax relief promised.

The Australian Chamber of Commerce and Industry, which had pushed for the Government not to make changes to the business tax cuts, has previously said the company tax cuts would provide $3 billion worth of relief to companies each year, while the cost of higher superannuation contributions would be about $20 billion over the phasing in period.

The benefit from the corporate tax cuts will now fall to about $1.5 billion, while the cost of the increased superannuation contributions has not changed.

Russell Zimmerman, executive director of the Australian Retailers Association, who previously said the 2% company tax rate cut would not be enough to offset the increase in superannuation contributions, says he is stunned and disappointed by the Government’s decision.

“The small business person is going to get nothing out of this at the end of the day” he says.

He says retailers are currently struggling to cope with a $26 increase in the minimum wage and the implantation of the complex new Modern Awards system.

The planned increase to the superannuation guarantee and the reduction in the company tax cut gave retailers “little to smile about”.

“We are reeling from the backflip. Right now we’ve got increase wages, a planned super hike and weak sales figures.”

Yasser El-Ansary, tax counsel at the Institute of Chartered Accountants, says the Government’s mistake was to bundle the resources tax cuts in with the other changes, including the business tax cuts and the immediate investment write-off allowance for small businesses that purchase assets worth up to $5,000, which has been retained.

“We’re not that surprised that the Government has had to trim some of the announcements made in early May,” he says.

“We always expected from the day the Government announced these changes, by linking all of those reforms together that it could have impact on the outright ability of some of those changes.”

El-Ansary says the SME community and tax experts will need to continue to push the Government to keep cutting the company tax rate.

“In the months ahead and in the years ahead, there will be ongoing pressure on the Federal Government to reduce the company tax rate because there are just such strong economic arguments for it.”

CPA Australia’s head of policy, Paul Drum, agrees and says his organisation wants to eventually see the company tax rate reduced to 25%.

While he says changes to the corporate tax rate are a “bitter pill” for small companies to swallow, he says the resources tax deal needs to be seen in context.

“This is actually part of setting up a framework that enables further reform in the future,” he says.

“Without a new revenue stream, which the mining tax is, there would be nothing for small business and nothing for superannuation.”

Drum also says the mining tax deal contains one win for small business in that 2,000 smaller mining companies will no longer be subject to the tax and will not have to face an additional compliance burden.

Treasurer Wayne Swan said the Government would consider further company tax rate cuts when financial conditions allowed.