A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999

Second Reading Speech

Senator Ian Campbell

I move:

That this bill be now read a second time.

The legislation enacting the new tax system was passed by this parliament last June and came into effect after Royal Assent on 8 July 1999. The most visible impact of the new system so far has been the price reductions for goods including TVs, video recorders, stereos and cameras as a result of wholesale sales tax on those items being reduced from 32 per cent to 22 per cent on 29 July.

Since the legislation came into effect, many industry groups and practitioners have identified and brought to the government's attention a number of issues. We have noted where improvements could be made, and we have taken on board constructive suggestions concerning the legislation.

This bill includes amendments which the government considers are necessary to ensure that the original intention of the law has been enacted and to ensure smooth implementation of this historic tax reform. Further consultations are continuing, and in particular areas-for example, financial services-the need for further amendments is being considered. However, I can inform the parliament that, barring unforeseen events, it is the government's intention to have further finetuning completed and legislated by the end of the year. This will provide business with a clear six-month period before implementation of the GST on 1 July 2000.

Turning to the specific changes, the amendments in this bill provide some necessary and worthwhile concessions, amendments to clarify the existing rules, and some revenue and consumer protection measures.

The government has always been concerned to ensure that the GST is not used as an excuse by unscrupulous operators to unfairly increase prices. While we have provided the Australian Competition and Consumer Commission with powers to monitor prices and tough penalties for exploitation, we have been made aware of a view that the ACCC's powers do not cover situations where prices are unfairly increased prior to 1 July 2000. To put the issue beyond any doubt, the government will amend the Trade Practices Act 1975 to ensure that, in addition to their post 1 July 2000 powers, the ACCC's powers enable it to take immediate action in respect of any unreasonable price rises before 1 July 2000.

During the negotiations with the Democrats over the initial package of tax reform legislation it was agreed that a charities consultative group would be established with the Australian Taxation Office. This group is assisting in clarifying the effect of the GST on the sector and will develop rulings well in advance of the introduction of the GST.

As a result of these consultations, this bill will extend the definition of non-commercial supplies of residential accommodation by charities. The market value and cost of supply tests will be extended for the non-commercial supplies of residential accommodation by charities from 50 per cent to 75 per cent.

The measure only applies to non-commercial supply of residential accommodation by charities, because the client income based contributions associated with residential accommodation are often only marginally above the current 50 per cent market value test. To not meet this test would make the supplies input taxed as residential rents or taxable as commercial accommodation for some boarding houses, which would significantly increase compliance costs. This is an important measure which will reduce compliance costs while maintaining the principle that all commercial supplies should be subject to GST. The 50 per cent market value test remains for other non-commercial supplies.

The government will also take this opportunity to insert measures to provide further assistance to small business. In particular, the government will provide special rules for retailers with a mixture of taxable and GST-free supplies so that the Commissioner of Taxation will be able to determine alternative, simpler methods of calculating GST liability for retailers selling such goods. This provision for simplified accounting methods is an important measure to reduce compliance costs of small business. In addition, the Treasurer has already announced that the government will extend the cash basis for accounting for GST by doubling the existing cash accounting threshold to $1 million.

The government has also decided to provide relief for vehicle lessors in certain circumstances. Currently, motor vehicle lessors with operating leases are required to pay GST on the disposal of vehicles acquired before 2 December 1998--that is the date the GST bills were introduced into parliament--and sold after 30 June 2000, without any ability to recover that tax from lessees. To alleviate this problem, we will allow a notional input tax credit on the sale of these vehicles to offset the GST imposed. The cost to revenue of this measure is $150 million over four years.

Amendments in this bill also clarify the operation of the GST in several areas. We will make clear that exports acquired by an overseas business in Australia will be GST free even when ownership of goods passes to the overseas purchaser, who is not registered or required to be registered, before the goods are removed from Australia. This amendment will be welcomed by a wide range of industry bodies who have raised the GST treatment of free on board exports with the government.

We will also clarify the definition of wine products so that the wine equalisation tax extends, as was intended, to fruit or vegetable wines and grape wine products such as wine cocktails, flavoured wines and a range of cream drinks.

As an important revenue protection measure, this bill clarifies the application of the transitional measure denying input tax credits for the GST on business insurance premiums. The current legislation allows businesses to choose to claim an input tax credit on their business insurance premiums at the end of a quarterly or monthly tax period.

The government will amend this to make the election prospective rather than retrospective. The option to elect to claim the input tax credit would be available at the time of registration or subsequently at the time of lodging the business activity statement. The option will be confined to one election per entity, rather than per policy, to minimise compliance costs. The revenue consequences of the amendment are nil because it essentially gives effect to the intended policy. However, if the measure were not adopted, then the cost to revenue would be significant.

To accord with international practice, this bill will ensure that GST applying to goods and services supplied is to be excluded from assessable income, and input credits on acquisitions are to be excluded from allowable deductions, except to the extent that input tax credits are denied in respect of the purchase.

There are also a number of other minor policy changes and technical amendments.

These amendments show the government's commitment to working with businesses and charities on tax reform and responding positively to constructive suggestions.

Full details of the measures in the bill are contained in the explanatory memorandum.

I commend the bill.