House of Representatives

Explanatory Memorandum

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

Chapter 1 - Higher rate for alcoholic beverages

Overview

1.1 Schedule 1 to each of the Sales Tax (Customs) (Alcoholic Beverages) Bill 1997, Sales Tax (Excise) (Alcoholic Beverages) Bill 1997 and Sales Tax (General) (Alcoholic Beverages) Bill 1997 (the 'Modification Bills') will increase the rate of sales tax applicable to alcoholic beverages by 15 percentage points (the current rate is either 22% or 26%).

1.2 The Schedules are identical in each Bill. References in this Chapter to particular items or Schedules should be read as a reference to the relevant item or Schedule in each of the Bills.

Summary of the modifications

Purpose of the modifications

1.3 The existing sales tax rate for wine, cider and similar beverages is 26% and 22% for other alcoholic beverages. The modifications will increase the rates to 41% and 37% respectively.

Date of effect

1.4 The modifications will apply to dealings on or after 3.30 pm eastern standard time on 6 August 1997.

Background to the legislation

1.5 On 5 August 1997, the High Court in its decision in Ha & Anor. v. State of New South Wales & Ors. and Walter Hammond & Associates Pty Limited v. State of New South Wales & Ors ruled that business franchise fees imposed by the State of New South Wales on tobacco are invalid under section 90 of the Constitution. The decision also casts doubt on the Constitutional validity of State and Territory franchise fees on petroleum and alcohol. As a result of the decision, States and Territories stand to lose billions of dollars in revenue. In order to protect the future revenue of States and Territories, and in response to the unanimous request of the States and Territories, it is proposed that Commonwealth excises on petroleum and tobacco and sales tax on alcoholic beverages be increased to collect the revenue which would be lost by the States and Territories. The money collected from the increases in excises and sales tax will be passed on to the States and Territories. This Bill only deals with the increase in sales tax on alcoholic beverages.

1.6 Currently the rate of sales tax on wine, cider and similar beverages (other than low alcohol wine) is 26% as set out in Item 1 of Schedule 7 to the Sales Tax (Exemptions and Classifications) Act 1992 (the E & C Act). The sales tax rate on low alcohol wine is 12% as set out in Item 15 of Schedule 2 of the E & C Act. Other alcoholic beverages are subject to sales tax at the general rate of 22% which is for goods not covered by another Schedule (Item 1 of Schedule 4 to the E & C Act).

Explanation of the modifications

1.7 The Modification Bills modify the E & C Act so that the current rate for taxable dealings on the following goods will be increased by 15 percentage points:

(a)

wine, cider, beverages similar to wine or cider, mead, perry, sake and other similar fermented beverages (covered by Item 1 of Schedule 7), unless they contain equal to or less than 1.15% by volume of ethyl alcohol;

(b)

beer - that is, any fermented liquor (whether or not the liquor contains sugar, glucose or any other substance) that is brewed from a mash (irrespective of whether it contains malt) and contains hops (or substances prepared from hops) or other bitters.

(c)

spirits, liqueurs or spirituous liquors; or

(d)

beverages that contain beer, spirits (other than spirits for fortifying wine or other beverages), liqueurs or spirituous liquors. [Item 2 of Schedule 1 - new section 15A]

1.8 The effect of the modifications is that the rate of tax on wine, cider and similar beverages will increase to 41% while the rate of sales tax on other alcoholic beverages will increase to 37%. The rate of tax on low alcohol wine will not change from the current rate of 12%.