Senate

Revised Supplementary Explanatory Memorandum

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

Chapter 2 - Changing the GST rate and base

Overview

2.1 The proposed amendments to Part 2 of the Bill add a definition of the term changes of an administrative nature which is mentioned in clause 10 of the Bill and provide that Ministerial Determinations under the A New Tax System (Goods and Services Tax Act) 1999 or the A New Tax System (Goods and Services Tax Transition) Act 1999 that affect the GST base will be made in accordance with a procedure agreed by all States and Territories.

Summary of the amendment

Purpose of the amendment

2.2 To provide greater clarity with respect to the provisions in the Bill which deal with changes to the GST rate and base, consistent with the Intergovernmental Agreement.

Date of effect

2.3 Clause 2 of the Bill provides that this Bill, once enacted, will commence when it has received Royal Assent or after the A New Tax System (Goods and Services Tax Act) 1999 ; the GST Imposition Acts; and the A New Tax System (Goods and Services Tax Act Administration) Act 1999 have commenced, whichever is later.

Background to the amendment

2.4 The proposed amendments to Part 2 of the Bill clarify that the 'lock-in' mechanism in relation to the GST rate and base extends to proposals to vary the GST base by way of Ministerial determinations under the A New Tax System (Goods and Services Tax Act) 1999 or the A New Tax System (Goods and Services Tax Transition) Act 1999 . The Intergovernmental Agreement states that proposals to vary the GST base by way of Ministerial Determinations will require the unanimous agreement of the Ministerial Council and that the Ministerial Council is to develop practical arrangements to ensure the timely consideration of proposed Ministerial determinations.

2.5 Clause 10 of the Bill provides for the Commonwealth to make changes to the GST base during the first year of the GST if the changes are, among other things, of an administrative nature. Subsequently, changes to the GST of an administrative nature will require the approval of a majority of the Commonwealth and the States and Territories. The amendments to Part 2 of the Bill define changes of an administrative nature in accordance with the definition included in the Intergovernmental Agreement.

Explanation of the amendment

2.6 Clause 10 of the Bill states that the GST base is not to be changed unless each State and Territory agrees to the change. Sub-clause 10(1A) adds to this requirement by providing that a variation of the GST base by way of a Ministerial Determination under the A New Tax System (Goods and Services Tax Act) 1999 or the A New Tax System (Goods and Services Tax Transition) Act 1999 will be required to be made in accordance with a procedure to which all the States and Territories have agreed.

2.7 Clause 11(2) adds that, for the purpose of sub-clause 10(2) and 10(3) of the Bill, changes of an administrative nature are defined as changes involving legislation necessary to:

(a)

maintain the integrity of the GST base; or

(b)

prevent tax avoidance.