Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)General outline and financial impact
Background
This package of Bills provides for an increase in sales tax on alcoholic beverages to protect the revenue of States and Territories which may be lost as a result of the High Court's decision in Ha & Anor. v. State of New South Wales & Ors. and Walter Hammond & Associates Pty Limited v. State of New South Wales & Ors. In its decision of 5 August 1997, the High Court held that business franchise fees on tobacco in New South Wales were invalid under section 90 of the Constitution. The franchise fees were held to be duties of excise which can only be imposed by the Commonwealth. The decision also casts doubt on the Constitutional validity of State and Territory franchise fees on petroleum and liquor. At the request of the States and Territories, this package of Bills raises additional wholesale sales tax on alcoholic beverages to replace the liquor franchise fees which would have been collected after 5 August 1997. It is proposed that the additional revenue raised from this increase in sales tax will be passed on to the States and Territories. The package comprises:
- Sales Tax (Customs) (Alcoholic Beverages) Bill 1997
- Sales Tax (Excise) (Alcoholic Beverages) Bill 1997
- Sales Tax (General) (Alcoholic Beverages) Bill 1997
- Sales Tax Assessment Amendment Bill 1997
SALES TAX (CUSTOMS) (ALCOHOLIC BEVERAGES) BILL 1997
SALES TAX (EXCISE) (ALCOHOLIC BEVERAGES) BILL 1997
SALES TAX (GENERAL) (ALCOHOLIC BEVERAGES) BILL 1997
Increases the rate of sales tax on alcoholic beverages by 15 percentage points.
Date of effect: The increase in the rate of sales tax will apply to dealings on or after 3.30pm eastern standard time on 6 August 1997
Proposal announced: Announced by the Treasurer in a Press Release (No. 85) on 6August 1997.
Financial impact: $760 m. in 1997-98
Compliance cost impact: The impact on compliance costs should be minimal. At present the goods subject to the increased rate are already subject to sales tax. However, in order to be able to identify separately the additional revenue raised, taxpayers may need to lodge a separate sales tax return.
Taxpayers may also face an additional cost in financing the payment of the additional sales tax by the due date when it is not collected from customers by that time.
SALES TAX ASSESSMENT AMENDMENT BILL 1997
Makes consequential amendments to the Sales Tax Assessment Act 1992 to:
- •
- ensure the small business exemption and quarterly remitter provisions are not affected by the increase in the rate of sales tax on alcoholic beverages;
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- limit the credit available on these goods;
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- ensure the taxable value of goods is not reduced by any rebate, refund or similar amount received from a State or Territory;
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- provide for the exchange of information by the Commissioner of Taxation to the States and Territories to allow for the State and Territory rebate schemes.
Date of effect: 6 August 1997
Proposal announced: Not previously announced.
Financial impact: No significant impact on revenue.
Compliance cost impact: The measures will ensure that compliance costs for small businesses do not increase because of the temporary increase in the rate of sales tax on alcoholic beverages, by ensuring the small business exemption and quarterly remitter provisions are not affected by the changes.
The measures will not otherwise impact significantly on compliance costs.
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
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.
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%.
Chapter 2 - Small business exemption
Overview
2.1 Item 1 of Schedule 1 to the Sales Tax Assessment Amendment Bill 1997 will amend the Sales Tax Assessment Act 1992 (the Act) to ensure that the increase in the rate of sales tax on alcoholic beverages does not affect the current small business exemption.
Summary of the amendments
2.2 The current sales tax law provides a small business exemption from sales tax. The amendments to the Act will ensure that the increase in the rate of sales tax on alcoholic beverages does not force taxpayers over the small business exemption threshold.
2.3 The amendments will apply from 6 August 1997.
Background to the legislation
2.4 Section 29 of the Act currently exempts small businesses from paying sales tax if the taxpayer's annual sales tax liability (described in the Act as the 'total tax liability') is $10,000 or less. The concession keeps small businesses out of the sales tax system. This provides a substantial reduction in compliance costs for the business and also results in reduced administration costs for the Australian Tax Office.
2.5 A consequence of the increase in the rate of sales tax on alcoholic beverages is that some liquor businesses, in particular small wine producers, which are currently not paying sales tax because of the small business exemption may now exceed the current $10,000 threshold.
Explanation of the amendment
2.6 Section 29 of the Act is to be amended to ensure that the additional 15% sales tax on alcoholic beverages is not included in the 'total tax liability' for determining whether a taxpayer satisfies the small business exemption. [Item 1 of Schedule 1 - new subsection 29(7)]
Example
Assume that a small wine producer has sales of $30,000 in a year. Currently the potential sales tax on that wine would be $7,800 (i.e., $30,000 x 26%). As the sales tax is less than $10,000 the wine producer would satisfy the small business exemption and would not be liable for sales tax.
As a result of the increase of 15 percentage points in the rates of sales tax on alcoholic beverages, the potential tax on the wine would be $12,300 (i.e., $30,000 x 41%) placing the wine producer over the small business exemption threshold. However, as the additional 15% on alcoholic beverages is not to be included in the total tax liability for the small business exemption, the total tax liability will be $7,800 which is less than the threshold. This ensures that the small business exemption continues to apply.
Chapter 3 - Taxable value of goods
Overview
3.1 Item 2 of Schedule 1 to the Sales Tax Assessment Amendment Bill 1997 will amend the Sales Tax Assessment Act 1992 (the Act) to ensure that any refund, rebate or similar payment made by a State or Territory to a sales tax payer in relation to alcoholic beverages does not reduce the taxable value of the goods.
Summary of the amendments
3.2 Sales tax is imposed on the taxable value of goods. The amendments to the Act will ensure that any refund, rebate or similar payment made by a State or Territory to a sales tax payer in relation to alcoholic beverages does not reduce the taxable value of the goods.
3.3 The amendments will apply from 6 August 1997.
Background to the legislation
3.4 The increase in the rate of sales tax on alcoholic beverages is to protect States and Territories from potential lost revenue because of liquor franchise fees possibly being invalid under section 90 of the Constitution. In order to ensure the revenue collected from the increase in sales tax on alcohol covers the forecast revenue from liquor franchise fees, the increase in the sales tax rate is set at 15 percentage points. However, in some States and Territories, the liquor franchise fee on certain types of alcohol was less than 15%. In some cases, the States and Territories intend to implement arrangements to rebate the difference between the new sales tax rate and the previous rate of franchise fee.
3.5 The rebate from the State or Territory may cause uncertainty as to the correct taxable value of the goods. Section 34 of the Act deals with how to work out the taxable value of a taxable dealing.
Explanation of the amendment
3.6 Section 34 is to be amended so that in working out the taxable value of the alcoholic beverages (as set out in section 15A) to which the 15 percentage point increase in the rate of sales tax applies, any rebate, refund or other payment or credit made by a State or Territory in respect of the alcoholic beverages is to be disregarded. [Item 2 of Schedule 1 - new subsection 34(4)]
Example
Assume a wholesaler sells low alcohol beer for $100. The beer was previously exempt from liquor franchise fees. The State in which the wholesaler resides decides to pay a rebate of $15. The invoice should read as follows:
Taxable value (i.e., price (excluding tax)) $100 Sales Tax (at 37%) 37 ---- Sales tax inclusive price $137 Less: State rebate 15 ---- Amount payable $122 ====
The rebate from the State is to be disregarded in determining the taxable value of the beer. Therefore, despite the rebate, the taxable value of the beer does not change and the sales tax payable is still $37.
Chapter 4 - Credit entitlement
Overview
4.1 Item 3 of Schedule 1 to the Sales Tax Assessment Amendment Bill 1997 will amend the Sales Tax Assessment Act 1992 (the Act) to limit the amount of sales tax credit which is available for alcoholic beverages subject to the increase in the rate of sales tax.
Summary of the amendments
4.2 The Act provides for sales tax credits in certain circumstances. The amendments to the Act will limit the entitlement to a credit so that a credit is not available for the additional 15% sales tax paid on alcoholic beverages.
4.3 The amendments will apply from 6 August 1997.
Background to the legislation
4.4 Part 4 of the Act provides that a person may obtain a credit for sales tax paid in certain circumstances. The increase in the rate of sales tax on alcoholic beverages is to protect States and Territories from potential lost revenue because of liquor franchise fees possibly being invalid under section 90 of the Constitution. Under the arrangements with the States and Territories, the Commonwealth will pass on the additional sales tax collected to the States and Territories. If a person is entitled to a credit under the sales tax law, they may seek that credit from the Commonwealth. However, the Commonwealth will have passed that revenue on to the States and Territories.
Explanation of the amendments
4.5 The Act is to be amended to limit the amount of credit which can be claimed in respect of alcoholic beverages subject to the 15 percentage point increase in the rate of sales tax. The credit limit will be determined using the formula:
Amount of credit x Rate of tax (excluding the 15%)/Rate of tax payable on the goods
In effect, a credit will not be available for the additional 15% sales tax paid on alcoholic beverages. [Item 3 of Schedule 1 - new section 58A]
Example
Assume a person seeks a sales tax credit for $410 which relates to the full amount of sales tax paid on wine. The person's credit entitlement will be limited to $260 (i.e., $410 x 26%/41%).
Chapter 5 - Quarterly remittance
Overview
5.1 Item 4 of Schedule 1 to the Sales Tax Assessment Amendment Bill 1997 will amend the Sales Tax Assessment Act 1992 (the Act) to ensure that the increase in the rate of sales tax on alcoholic beverages does not affect the current requirements for quarterly remittance.
Summary of the amendments
5.2 The current sales tax law provides for quarterly, rather than monthly, remittance of sales tax where the amount of sales tax is below a certain threshold. The amendments to the Act will ensure that the increase in the rate of sales tax on alcoholic beverages does not force taxpayers over the quarterly remittance threshold.
5.3 The amendments will apply from 6 August 1997.
Background to the legislation
5.4 A sales tax payer is required to remit on a quarterly or monthly basis. Section 62 of the Act provides that a payer may remit on a quarterly basis if their 'total sales tax that became payable' for the previous financial year does not exceed a specified threshold ($57,570 for the 1996/97 financial year). This concession reduces compliance costs for taxpayers and results in reduced administration costs for the Australian Tax Office.
5.5 A consequence of the increase in the rate of sales tax on alcoholic beverages is that some sales tax payers who are currently paying sales tax on a quarterly basis will be required to pay sales tax on a monthly basis because their 'total sales tax that became payable' may exceed the threshold in section 62.
Explanation of the amendment
5.6 Section 62 of the Act is to be amended to ensure that the additional 15% sales tax on alcoholic beverages is not included in the 'total sales tax that became payable' for determining whether a taxpayer exceeds the quarterly remittance threshold. [Item 4 of Schedule 1 - new subsection 62(6)]
Example
Assume that a wine producer has wine sales of $200,000 in the 1997-98 year and has no other taxable dealings. Currently the potential sales tax on that wine would be $52,000 (i.e., $200,000 x 26%). Also assume that the quarterly remittance threshold for the 1997-98 year is $58,000 (Note: This is not the actual threshold, the correct figure will not be known until 1998). As the wine producer's sales tax is less than the quarterly remittance threshold (i.e., $58,000) the wine producer would remit sales tax in the 1998-99 year on a quarterly rather than a monthly basis.
As a result of the increase of 15 percentage points in the rates of sales tax on alcoholic beverages, the potential tax on the wine would be $82,000 (i.e., $200,000 x 41%) placing the wine producer over the quarterly remittance threshold. This would result in the wine producer having to remit on a monthly basis for the 1998-99 year. However, as the additional 15% on alcoholic beverages is not to be included in the total sales tax that became payable for the purposes of determining whether the threshold is exceeded, the tax payable for purposes of the threshold will be $52,000 which is less than the threshold. This ensures that the wine producer continues to remit on a quarterly basis.
Chapter 6 - Disclosure of information
Overview
6.1 Items 5 to 7 of Schedule 1 to the Sales Tax Assessment Amendment Bill 1997 will amend the Sales Tax Assessment Act 1992 (the Act) to allow for the disclosure of information to appropriate State and Territory officers to assist in the State and Territory rebate schemes.
Summary of the amendments
6.2 To provide for the limited disclosure of information to State and Territory officers to facilitate the State and Territory franchise fee rebate schemes.
6.3 The amendments will apply from 6 August 1997.
Background to the legislation
6.4 As explained in chapter 3 (see paragraph 3.4), in some cases, the States and Territories intend to implement arrangements to rebate the difference between the increase in the sales tax rate and the previous rate of liquor franchise fees.
6.5 The administration of the rebate schemes would be eased if some of the information collected by the Australian Taxation Office on the additional 15% sales tax on alcoholic beverages was made available to the States and Territories. Under section 110 of the Act, the Commissioner is currently prohibited from disclosing that information to the States and Territories.
Explanation of the amendments
6.6 It is proposed that section 110 of the Act be amended to allow the Commissioner to disclose limited information to the States and Territories. The information may only be disclosed by a person authorised by the Commissioner of Taxation or by a Deputy Commissioner of Taxation. The information can only be disclosed to a State or Territory officer for the purpose of administering a scheme of rebates, refunds or other payments or credits made by a State or Territory in respect of alcoholic beverages subject to the additional 15% sales tax. [Item 5 of Schedule 1 - new paragraph 110(3)(e)] .
6.7 A State or Territory officer is a person holding an office as prescribed in the regulations. [Item 7 of Schedule 1 - new definition of 'State or Territory officer' in subsection 110(6)]
6.8 The information which can be disclosed is limited to:
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- the identity of the parties dealing with the alcoholic beverages;
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- the amount for which the goods are sold;
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- the taxable value of the goods;
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- the amount of sales tax paid, or payable, for the goods and the identity of the person liable for the tax;
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- details of any credits to which a person is entitled in respect of the goods and the identity of that person. [Item 6 of Schedule 1 - new subsection 110(5A)]