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Part of a ZDNet Special Feature: Coronavirus: Business and technology in a pandemic

Industry body wants R&D Tax Incentive Bill pulled in the wake of COVID-19

Instead, the Australian Information Industry Association wants the government to support R&D activities of startups and small to medium-sized enterprises as they prepare for a post-coronavirus world.

The Australian Information Industry Association (AIIA) has asked the federal government to not proceed with the proposed changes to the country's research and development (R&D) laws.

AIIA said the proposed changes to the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 would affect small to medium-sized enterprises (SMEs), even more than it already is, as the world battles the COVID-19 pandemic.

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"The AIIA calls on the government to withdraw the legislation and to increase the incentive to kick start the innovative tech sector coming out of COVID-19 lockdown," it said in a statement.

"The proposed amendment to the Research and Development Tax Incentive scheme will reduce Australia's ability to undertake more ambitious R&D projects and make the country less competitive against those international competitors who provide more generous R&D incentives."

The Senate Economics Legislation Committee in February last year asked the Bill to be taken back to the drawing board, saying at the time it had recognised the need for government to maintain public confidence in the integrity and financial sustainability of the R&D tax incentive, but that it was not confident the introduced measures would provide exactly that.

The Bill remains mostly unchanged, with minor tweaks to premium offsets.

If the Bill goes ahead, it would permanently increase the R&D expenditure threshold from AU$100 million to AU$150 million; link the R&D tax offset for refundable R&D tax offset claimants to their corporate tax rates, plus a 13.5 percentage point premium; cap the refundability of the R&D tax offset at AU$4 million per annum; and increase the targeting of the R&D tax incentive to larger R&D entities with high levels of R&D intensity.

"If passed, the Bill will compel Australian-based ICT companies to either outsource R&D activities to overseas markets, adversely affecting Australian employment opportunities, or abandon R&D activities in their entirety," AIIA said on Thursday.

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AIIA CEO Ron Gauci said it was important to start incentivising startups and SMEs.

 "It's important we snap back the economy and business post-COVID-19 restrictions -- and we must incentivise startups and the SME sector to allow for investment and growth," Gauci said.

"One of the impacts of the pandemic has been the shutting down of international travel stopping critical skills and the effects on tech supply chains. Increasing the R&DTI will help boost Australian tech capability and the economy as well as support our digital sovereignty."

In a submission to the Senate Standing Committee on Economics and its review of the Bill, AIIA said the pending laws would negatively affect local businesses instead of protecting them from multinationals that may take advantage of the scheme.

"The AIIA is concerned that the proposed amendment to the Research and Development Tax Incentive scheme, which has provided tangible incentives to Australian companies to pursue R&D activities, is being unduly diluted," the not-for-profit advocacy group said.

At the time, the AIIA made a handful of recommendations, including that the current thresholds be raised in line with the new tax rates for SMEs; that the rate for large business are in line with the current tax rate of 38.5%; that the rate for SMEs remains unlinked and at the current tax rate of 43.5%; that the R&D Tax Incentive scheme incorporates a renewed focus on high-risk applicants; and that the Bill not be retrospective to commence on 1 July 2019.

AIIA on Thursday said in light of current circumstances, in addition to the above, more needs to be done.

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