Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)General outline and financial impact
Industrial safety equipment
The modification Bills modify the operation of the ST (E & C) Act, as modified by any other Act, to ensure that industrial safety equipment is only exempt from sales tax if it is of a kind that is mainly used to protect persons engaged in industrial operations.
Date of effect: The modification applies to dealings on or after 1 January 1993.
Proposal announced: The proposal was announced in Assistant Treasurer's Press Release No. 47 of 5 October 1999.
Financial impact: The measure protects the existing sales tax revenue base by ensuring that credits cannot be claimed in respect of goods that were never intended to be exempt from sales tax. It will also ensure that sales tax will continue to be paid on these goods from 5 October 1999.
Compliance cost impact: There will be some compliance costs for taxpayers who lodged credit claims prior to 5 October 1999 and who will now have to establish that the benefit of any credit is passed on to the final consumer.
Industrial safety equipment - transitional provisions
This Bill provides for transitional measures for the modification to Item 20 in Schedule 1 to the ST (E & C)Act, made by the following modification Bills:
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- Sales Tax (Customs) (Industrial Safety Equipment) Bill 2000;
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- Sales Tax (Excise) (Industrial Safety Equipment) Bill 2000; and
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- Sales Tax (General) (Industrial Safety Equipment) Bill 2000.
Date of effect: Royal Assent.
Proposal announced: The proposal was announced in Assistant Treasurer's Press Release No. 47 of 5 October 1999.
Financial impact: The measures ensure that certain credits paid or exemptions claimed in respect of dealings prior to 5 October 1999 are not subject to sales tax as a result of the modification made by the modification Bills. It will also ensure that sales tax will continue to be paid on these goods from 5 October 1999.
Compliance cost impact: There will be some compliance costs for taxpayers who lodged credit claims prior to 5 October 1999 and who will now have to establish that the benefit of any credit is passed on to the final consumer.
Summary of Regulation Impact Statement
Impact: Low.
Main points:
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- This modification will correct the unintended consequences of the 1992 legislation which aimed to streamline the sales tax law. The explanatory memorandum to the ST (E & C) Act stated that the new Item 20 represented 'no substantive change' from the previous exemption when using the phrase 'of a kind ordinarily used' in place of 'of a kind used exclusively or primarily and principally'. There was a clear intention by the Parliament in 1992 that the exemption for industrial safety equipment was not intended to be widened from its original narrow scope. However, several Federal Court decisions have not adopted this view. The result is that a wide range of goods that were not intended to be exempt may now qualify for the exemption.
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- There are 2 options available to implement this measure. While both would result in effectively the same outcome, the second option would result in a significant additional administrative burden on the ATO and therefore has not been adopted.
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- The most significant impact group from the implementation of this measure are wholesalers (as the principal taxpayers), although retailers, end users and the ATO are also affected.
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- The revenue at risk if this modification is not enacted could be in excess of $2 billion. This figure assumes that without a modification to give effect to the Government's announcement on 5 October 1999, substantial claims for credits could be lodged by taxpayers involved in a significant number of industries for dealings over the previous 3 years. This modification will see these risks reduced significantly by limiting the circumstances in which credit claims can be made.
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- The benefits of removing the unintended access to the Item 20 exemption by implementing this measure significantly outweigh the costs. As the majority of those potentially affected by this measure have dealt to date on the basis of the Parliament's intended application of the sales tax law, the obligations imposed on them as a result of this proposal are limited. However, the potential risk to revenue if the Government did not seek to redress this anomaly is significant.