House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)

FINANCIAL IMPACT

The proposed legislation will:

•

curtail certain sales tax evasion practices (presently estimated as costing the revenue up to $200m annually) that have developed by the misuse of the procedure whereby a registered person may purchase goods sales tax free by quoting a sales tax certificate number;

•

ensure that wholesalers who technically become retailers under agency or similar retail selling arrangements thereby avoiding sales tax on their wholesale profit margins and any royalties payable in respect of their goods, pay sales tax at a fair wholesale market value of goods sold under such arrangements (estimated to involve revenue of at least $200m annually);

•

enable the Commissioner to recover up to $1m in sales tax avoided by manufacturers who, since 20 August 1981 (date of former Treasurer's announcement), have sought to take advantage of a weakness in the present definition of "manufacture";

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put an end to avoidance schemes under which royalties payable in respect of goods are excluded from the sale value of the goods. The cost to the revenue in relation to goods sold under arrangements other than indirect marketing arrangements has been approximately $25m and the legislation will prevent indeterminate future revenue losses; and

•

provide a cut-off date to the operation of transitional provisions applicable to certain anti-avoidance amendments to prevent further indeterminate loss to the revenue.