Currently the corporate tax rates are 30 per cent for
companies with an annual aggregated turnover of more than $2 million and
28.5 per cent for companies with an annual aggregated turnover below this
From 1 July 2016, the government proposes to change these
- 30 per cent for companies with an annual aggregated turnover greater
than $10 million (but this rate is scheduled to fall to 25 percent over 10
- 27.5 per cent for companies with an annual aggregated turnover of
less than $10 million.
Number of companies possibly affected
The focus of these
changes is squarely on small and medium enterprises (SMEs). It is estimated that
on the basis of the 2013–14 taxation statistics about 792,000 companies could
benefit from the proposed change to the small company tax rate.
These companies comprised about 91 per cent of all companies and yielded about
22 per cent of the total company tax collected in 2013–14. About 734,000
companies were subject, in 2013–14, to the 28.5 per cent rate.
International comparison of company
Table 1 provides both
the overall corporate tax rate and the small business tax rates for selected countries
who are members of the Organisation for Economic Cooperation and Development
(OECD) and that have a differential corporate tax rate regime, and also for
Singapore, which is not an OECD member.
Table 1: Main and small
business corporate tax rates, 2015 (%)
Small Business Rate
Sources: OECD Tax Database
and Singapore government
Table 1 does not give a full picture of corporate tax rates.
For example, Luxembourg plans to reduce its combined corporate tax rate to 19
percent in 2017 and further reductions thereafter.
In addition, Singapore, Luxembourg and Ireland have special tax rates applying
to companies in particular circumstances.
Arguments for and against
There are a number of benefits from promoting the SME sector:
SMEs are crucial to the social and
economic health of local, regional and national communities. As the mining boom
naturally evolves from investment to production, SMEs will increasingly drive
future economic growth. Their adaptability and flexibility allows the
exploitation of niche markets and embrace of new technology. SMEs can enter and
exit markets more nimbly in response to fluctuations of price and demand,
thereby boosting competition, increasing choice, delivering value and forcing
existing firms to improve.
There are several arguments in favour of concessional tax
treatment for small business.
A 2009 review by the OECD noted that the main arguments in
favour of this concessional treatment were:
positive externalities (such as higher employment, faster growth,
higher rates of innovation and high rates of involvement in export markets,
greater economic development in regional areas) whereby small
businesses generate benefits greater than those accruing to private investors
- the need to overcome capital market imperfections resulting from less
information about small companies being held by lenders, compared to the
information being held on larger company borrowers, as well as small company borrowers
not having as much information about sources of finance compared to large
company borrowers (information asymmetries); and
- to overcome impediments to small business creation and growth
created by ‘normal’ tax arrangements that apply to small businesses. These include
the relatively high compliance burden, taxes on the sale or inheritance of
small businesses, and limited loss offsets that discourage risk taking.
The arguments against preferential tax treatment for small
- uncertainties about the extent to which positive spill-over
benefits are particularly associated with small businesses
- whether asymmetric information problems noted above may in some
cases result in overinvestment, rather than underinvestment
- practical implementation of such measures, which may lead to
efficiency losses (through inadequate targeting of government assistance
- whether a tax intervention is the best way to achieve a certain
The application of differential company tax rates is a
temporary measure, with increasing numbers of companies being subject to the
27.5 per cent tax rate up to 2024–25, after which all companies will have the
same tax rate applied.
A company’s aggregated turnover is defined as annual turnover of the
business plus the annual turnover of an associated or affiliated business. Section
328–120 of the Income Tax Assessment Act 1997 provides this
definition: ‘annual turnover for an income year is the total ordinary income
that the entity derives in the income year in the ordinary course of carrying
on a business’.
The 28.5 per cent rate was introduced by the Tax Laws Amendment
(Small Business Measures No. 1) Act 2015. For background, see K Swoboda, Tax
Laws Amendment (Small Business Measures No. 1) Bill 2015, Bills digest,
116, 2014–15, Parliamentary Library, Canberra, 2015.
See L Nielson, Corporate Tax Rate Reductions: Large Business, Budget
Australian Government, Budget measures:
budget paper no. 2: 2016–17, 2016, p.41.
Australian Taxation Office, Taxation
statistics 2013–14, 2016, Summary Table 5.13.
Australian Taxation Office, Taxation
statistics 2013–14, 2016, Summary Table 5.13.
that the criteria for ‘small business’ varies across jurisdictions and can
include staff levels, capital, turnover and taxable income measures.
The first S$100,000 profit is tax free. The 8.5 per cent applies to
profits between S$100,001 and S$300,000.
OECD Tax Database, Corporate Tax Rates;
Singapore Government, Inland Revenue Service, Corporate
Tax Rates, Corporate Income Tax Rebates, Tax Exemption Schemes and SME Cash
Grant, website. In this table both the main corporate tax rate and the
small business tax rate are the overall rate imposed by both the central and
PriceWaterhouseCoopers (PWC), Luxembourg
Government announces 2017 tax changes, 29 February 2016, p. 1.
B Billson (Minister for Small Business), Address
to the G20 Agenda for Growth: Opportunities for small and medium enterprises
conference, Melbourne, 20
A Tan, P Brewer, P Liesch, and L Coote, ‘Commitment to
internationalisation : an extension of the internationalisation process model’ in Institutions, organisations and markets: new
international business research opportunities, University of Auckland, New
Zealand, 2014; J Freeman, C Styles and M Lawley, ‘Does firm
location make a difference to the export performance of SMEs?’, International Marketing Review, 29 (1),
2012, p. 88; C Graves and YG Shan, ‘An
empirical analysis of the effect of internationalization on the performance of
unlisted family and nonfamily firms in Australia’[abstract], Family
Business Review, August 2014, pp. 1-19; V Le and A Valadkhani, ‘Are
exporting manufacturing SMEs more efficient than non-exporting ones? Evidence
from Australia's business longitudinal database, [abstract],
Economic Analysis and Policy, 44 (3), 2014, pp. 310-317; Export Finance and
Insurance Corporation (Efic), SME
Exporter Index, September 2014, p. 17.
of SMEs: key issues and policy considerations, OECD Tax Policy Studies,
18, 2009, p. 84 and pp. 94–95.
See, L Nielson, Corporate Tax Rate Reductions: Large Business, Budget
All online articles accessed May 2016.
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