KPMG: Australian R&D tax moves counterproductive and out of step
The Government's move to reduce the R&D tax incentive for large companies is a retrograde step for innovation in Australia and could harm its long-term growth prospects, warns KPMG.
This cut comes on top of another proposed measure, also being considered in the Senate this week, to reduce the R&D offset rate for all companies for the current financial year.
Australia will be one of the few countries in the world to exclude a targeted subset of larger companies from claiming an R&D tax incentive. KPMG warns that this is likely to reflect poorly on the country internationally, and lessen Australia's R&D and innovation credentials, which are pivotal factors underpinning economic growth.
KPMG points out that other countries such as the UK, are expanding their R&D programmes despite tough economic conditions, and that large scale transformational projects, undertaken with elements of R&D are inextricably linked to broader supply chains and create flow-on impacts to employment. Large companies often invest in riskier and more radical R&D which involve significantly higher costs.
David Gelb, KPMG Head of R&D Incentives, said: ‘'The legislation penalises successful companies with large operations in Australia and Australian resident companies. By reducing entitlements to the companies that spend the most, usually strongly weighted towards labour, this measure discourages investment in R&D and potentially impairs Australian jobs and international competitiveness'.
He added: ‘If this proposal does not achieve the desired savings, will the Government look to expand the exclusion to smaller companies? Whilst this has been on the table for the last 12 months, there has not been a proper consultative review of this measure'.
The Senate measures come as KPMG releases a report which shows countries across the Asia-Pacific region are competing for R&D investment.
- Japan is extending its R&D tax credit system for another 3 years
- Singapore is introducing additional benefits for SMEs
- South Korea expands benefits for medium-sized companies
- Thailand, Sri Lanka and Malaysia all have 200% R&D additional deduction rate
Alan Garcia, KPMG ASPAC R&D Lead Partner, and author of the report, said: ‘In a globally mobile world, R&D investment is considered to be a key factor to enhance skills, jobs and economic growth. Governments across Asia-Pacific are increasingly recognising the importance of offering competitive R&D tax regimes, which gives companies the chance to shop around and identify where best to conduct their R&D to obtain the greatest value. It is important that Australia does likewise.’
Notes to editors:
In the Senate this week:
- Targeting Access Bill (Tax Laws Amendment (Research and Development) Bill 2013) is due for debate Wednesday, December 3
- Rate Reduction Bill (Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill) is due on Thursday, December 4