House of Representatives

Indirect Tax Legislation Amendment Bill 2000

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 10 - Alcoholic beverages held on 30 June 2000

Outline of Chapter

10.1 Changes introduced by the new tax system include changes to the amount of customs duty or excise duty payable on alcoholic beverages other than wine. The duty on most alcoholic beverages will increase as a result of the changes.

10.2 Under the wholesale sales tax system persons who are registered for sales tax are able to hold stocks of alcoholic beverages free of sales tax. Where these goods are also subject to customs duty or excise duty, the duty is imposed when the goods are entered into home consumption. Goods that have been entered are past the point where duty can be imposed.

10.3 The combined effect is that goods held in stock at the start of 1 July 2000 may be sales tax free and, if they have passed the point at which duty is levied, will only have duty paid on them at the old duty rate. After the start of 1 July 2000, where these goods have gone past the point at which duty is levied, the manufacturer or wholesaler can sell these goods with the addition of GST only. This will result in less total tax being collected on these goods than is payable under the current tax system and less than is intended to be paid under the new tax system.

10.4 In addition, certain alcoholic beverages which are not currently subject to customs duty or excise duty will become subject to duty after 1 July 2000. These goods may also be held sales tax free at the start of 1 July 2000 and hence achieve a tax advantage when they are sold.

10.5 The loss of revenue in respect of stocks that would normally be held at the end of 30 June 2000 may not be significant but if stockpiling occurs to take advantage of the tax differential the revenue loss could be significant.

Detailed explanation of new law

The amendments

10.6 Items 4 and 5 add 2 new assessable dealings to Table 1 in Schedule 1 to the STAA 1992. New dealing AD4c relates to Australian goods and AD14c to imported goods. Both dealings relate to holding for sale increased duty alcoholic goods immediately before 1 July 2000. The sales tax liability is imposed on the person holding the goods for sale. The taxable value of the dealing is the purchase price. The time of the dealing is immediately before 1 July 2000.

10.7 Sales tax payable under these dealings will be included in sales tax returns for the period ending 30 June 2000 (or 31 July 2000 for quarterly taxpayers). The normal time for payment of sales tax is the 21st day after the end of the month. However, the Commissioner has the power in a particular case to extend the time for payment of tax or allow it to be paid in instalments.

10.8 The amendments relate to increased duty alcoholic goods . These are goods mentioned in subsection 15A(1) of the Sales Tax (Exemptions and Classifications) Act 1992 , other than those products covered by the WET Act. In addition the products must meet the tests in either of the subsections in new section 23A . New subsection 23A(1) relates to goods which have not borne sales tax but have had duty levied at the old rate and new subsection 23A(2) relates to goods which are currently not subject to duty but which will become subject to duty from the start of 1 July 2000. Products which will be subject to a lower rate of duty after 1 July 2000 are not increased duty alcoholic goods.

10.9 Persons holding increased duty alcoholic goods at the start of 1 July 2000 may also be entitled to a special GST credit (section 16 GST Transition Act) for a portion of the sales tax borne on these goods. The combined effect of the new assessable dealing and the GST Transition Act is that sales tax will be payable based on the person's purchase price of the goods but part of that amount may be able to be claimed as a special GST credit.

10.10 Goods held by retailers under a consignment arrangement are also covered by this amendment.

10.11 New subsection 51(3A) provides that a credit in respect of increased duty alcoholic goods sold before 1 July 2000 cannot arise from a return of the goods to the seller after 30 June 2000. This is because the seller will be entitled to treat the goods as being on hand at 30 June 2000 and claim any appropriate special GST credit under section 16 of the GST Transition Act.

10.12 Wine within the meaning of the WET Act will be subject to the WET from the start of 1 July 2000 and will not be affected by this amendment.

Regulation impact statement

Policy objective

10.13 The Government's policy objective is to ensure that under the new tax system, alcoholic beverages purchased free of sales tax before 1 July 2000 do not have a tax advantage over stock purchased after 1 July 2000.

10.14 Two situations have been identified where wholesalers of alcoholic beverages will be able to avoid taxation in the transition to the new tax environment. Both situations result from the ability of wholesalers to hold wholesale sales tax free stock by quoting their sales tax number when purchasing from manufacturers.

10.15 The first situation involves currently excisable products such as spirits and beer. Prior to 1 July 2000, wholesalers may purchase these products from the manufacturer, excise duty paid but wholesale sales tax free. Wholesale sales tax will not apply to beverages sold from 1 July 2000. For example, for stock on hand of spirits as at 30 June 2000, the wholesaler will have only paid the old excise duty rate which will be approximately $50 per carton (for spirits) less than the new duty rate. No additional duty can be imposed as the products will have passed out of Excise control. It is also possible that manufacturers may be able to benefit from stockpiling in some instances.

10.16 The second situation involves fermented beverages and hybrid ready-to-drink products that are not currently subject to excise duty. Prior to 1 July 2000, wholesalers may purchase these products from the manufacturer wholesale sales tax free. These products are not currently subject to excise but they will be under the new tax arrangements. From 1 July 2000 wholesales sales tax will not apply, so for stock held by the wholesaler as at 30 June 2000, the only tax that will be collected will be GST.

Implementation options

10.17 The Government considers only one option is available - to amend the STAA1992 to impose a wholesale sales tax liability on alcoholic products which are not subject to the WET and that are held sales tax free for wholesale sale at 30 June 2000.

Assessment of impacts

10.18 This measure will remove the incentive to stockpile alcoholic beverages which have been purchased sales tax free prior to 1 July 2000 such as beer, spirits, fermented beverages, and hybrid ready-to-drink products.

Impact groups

10.19 This measure will impact on wholesalers of alcoholic beverages, estimated to be around 250 in number.

Costs and benefits

10.20 Affected taxpayers will be able to claim, after 1 July 2000, part of the sales tax paid as a special GST credit under the GST transitional provisions.

10.21 The compliance costs on firms trading alcoholic beverages will be minimal reflecting that a stocktake would routinely take place on 30 June 2000.

10.22 This measure has no revenue impact against the forward estimates. If the measure did not proceed there would be a risk to revenue.


10.23 The alcohol industry has been consulted and supports the amendment.

Conclusion and recommended option

10.24 The Government has decided to pursue an amendment to ensure the appropriate tax liability accrues on alcoholic beverages in the transition to the new tax system.

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