The House of Assembly passed a bill bringing in a new tiered payroll tax structure giving breaks for small and medium-sized businesses last night.

The payroll threshold for the lowest rate of 7.25 percent was doubled to $200,000 while a new rate of 10.75 percent will apply for payrolls below $500,000 and a new rate of 12.75 percent will apply to payrolls below $1 million.

The highest tax rate of 13.5 percent will apply to payrolls exceeding one million dollars.

Finance Minister Paula Cox said the new structure came after talks with small business.

She said: "The issues of sharp increases in the rate of payroll tax for many businesses whose payrolls went from less than $200,000 in one year to more than $200,000 in an ensuing year has been a sore point for small businesses for many years and has had the effect of inhibiting business expansion."

Ms Cox said stabilising and rejuvenating business activity across the board was a key part of its social agenda. The biggest beneficiaries would be businesses who have a payroll between $100,000 and $200,000, said Ms Cox. Previously they paid 7.25 on the first $100,000 and 9.25 percent on the second $100,000. Now they will pay 7.25 percent on everything up to $200,000.

Exempted companies of any size are not subject to the tiered structure and must pay 13.5 percent. Economic sectors still suffering after 2003's Hurricane Fabian such as farmers, fishermen, hotels, guest houses, restaurants and small businesses will not have any increase in their payroll tax and the rate for churches and charitable organisations will remain unchanged.

The employee proportion of payroll tax will remain at 4.75 percent. Government expects to collect $250 million in payroll tax in 2005/06 and has been working to improve the yield during the last three years with tax audits and on-line payments.

If passed by the Senate the new structure will take come into effect on April 1. The bill also gives a full exemption from payroll tax for Bermudians in an approved training scheme.

Opposition Leader and finance spokesman Grant Gibbons said his party supported the move but wondered why it had taken so long.

"We have been calling for it for at least a couple of years."

He said it needed to be adjusted regularly to take account of inflation but had not been changed since 1995.

However Government changed the top rate from 12.75 percent to 13.5 percent in the Budget last year.

Government had gathered an extra unforecast $161 million over the last three years said Dr. Gibbons which had come out of the pockets of workers and businesses.

And since 1998 the taxpayer was handing over another $100 million per year. Opposition Works and Engineering spokeswoman Patricia Gordon-Pamplin said Government had squandered the money.

Government Education Minister Terry Lister said small businesses were grateful that the categories were calculated on a quarterly basis. Opposition Health Spokesman Michael Dunkley called for cuts in payroll tax across the board, not just for small businesses.

Replying to the comments Ms Cox said since 9/11 Government had given breaks on payroll taxes to businesses and she said no-one had ever marched in protest over a PLP budget.

She said the changes would cost $8-10 million.