In a pre-budget survey, KPMG Enterprise found that 40 per cent of SME respondents believe the government’s planned cuts to the corporate tax rate will make no difference and 24 per cent believe further cuts are needed to be truly effective.
KPMG Enterprise tax partner Brett Mitchell told Accountants Daily that there are three things that he believes drove that result.
One is that they may not have yet seen the benefit of the tax cuts, according to Mr Mitchell.
“[In the year 2016], tax cut to small businesses was 28.5 per cent and a lot of these people wouldn’t have lodged returns or anything at that stage, so they may not have seen the real cash benefit, and 1.5 per cent might have been too small,” he said.
“What had been announced in last year’s budget and finally got through the senate was the new round of tax cuts, where now the tax rate at 27.5 per cent includes companies up to $10 million in turnover. So I think the survey result indicates a lack of seeing the real benefit at this stage.”
Secondly, Mr Mitchell said SMEs are probably still comparing Australia’s corporate tax rate to that in other countries.
“They’re looking around the world and thinking, even at 27.5 per cent it’s still not as far as other western countries have gone. You can look at Singapore at 17 per cent, the UK at 19 per cent and the USA flagging to go to 15 per cent,” he said.
“You might have a few of the small businesses sitting back and going, we probably haven’t gone far enough compared to many of our competitors.”
Lastly, some SMEs probably realise that the changes to the company tax rate has little impact on their marginal tax rate according to Mr Mitchell.
“The third thing that comes to mind is that it is a smart sector and they probably realise that company tax is really just a withholding tax rate. Ultimately you pay profits at your real tax rate when you pay those dividends out and that goes and gets paid at their marginal rate,” he said.
“So considering that we haven’t really had any significant reform on the marginal tax rate, the sector is probably smart enough to go well, really, there’s no real change in overall tax take here at all.”