Second Reading Speechby The Treasurer, the Hon. John Howard, M.P.
In speaking to the Bill I have just introduced to recover tax evaded in the course of "bottom-of-the-harbour" strips of untaxed company profits I mentioned that I would be introducing a further Bill to double the rate of penalty for late payment of income tax.
This Bill will achieve that purpose, not just for companies that were stripped of assets but also for all individuals and other companies that are late in paying their income tax.
On 10 August 1982 I announced the Government's intention to propose an increase from 10% per annum to 20% per annum in the rate of penalties payable under the various taxation laws for late payment of tax.
At the same time I gave some details of the Government's intention to introduce a system for payment of interest on a refund of tax that occurs as a result of a successful objection or appeal by a taxpayer.
By this Bill, the Income Tax Law will be amended to increase the rate of Late Payment Penalty for late payment of income tax and related amounts.
The increase to 20% will not, however, take effect until two months after this Bill has become law.
The new rate of penalty tax provided in this Bill will apply in respect of the late payment of assessed income tax, withholding tax on interest and dividends paid to non-residents of Australia, mining withholding tax and tax instalment deductions made by an employer from salaries or wages paid to employees.
The Bill also proposes a corresponding increase in the rate of additional tax payable where the taxable income of a company has been underestimated and the company has thereby been enabled to pay reduced instalments of company tax.
The existing Income Tax Law empowers the Commissioner of Taxation to remit all or part of an amount of Late Payment Penalty where that is judged to be appropriate.
Where there is an objection or appeal against an assessment and the Commissioner accepts that the taxpayer has a genuine difference of opinion about his or her tax liability, the present general administrative practice of the Commissioner is, in the exercise of that power to remit, to enter into an arrangement with the taxpayer to remit all Late Payment Penalty in the event that the taxpayer is not successful in his objection or appeal. This arrangement is on the basis that the taxpayer pays one-half of the tax in dispute pending the outcome of the objection or appeal - it has been called a 50/50 arrangement.
This Bill will re-express the power given to the Commissioner of Taxation to remit Late Payment Penalty, so that this particular approach to the handling of disputed income tax liabilities will not be available in future.
The Commissioner will of course continue to be empowered to remit Late Payment Penalty where there are special circumstances, such as adverse business conditions or other factors beyond the control of the taxpayer.
Although the remission power is to be altered for the future, existing 50/50 arrangements will be allowed to continue according to their terms.
I also make the point that under the legislation we propose that a person who has a genuine dispute about liability will be able to pay to the Commissioner one-half of the disputed tax and obtain an extension of time for payment of the balance on the basis that, if the taxpayer wins the contest, he or she will be paid interest when the 50 per cent is refunded but, if the taxpayer loses, the Commissioner will be entitled to recover the remaining 50 per cent subject to Late Payment Penalty of 20 per cent from the date when the assessment became payable.
It has not been practicable to include in this Bill the measures necessary to provide for the payment of interest to taxpayers.
We are committed to these measures and they will be introduced after the forthcoming break in sittings.
It also remains the Government's intention to introduce as soon as practicable legislation dealing with Late Payment Penalties and payment of interest in respect of sales tax and other taxes administered by the Commissioner of Taxation.
Finally Mr Speaker, I mention the review that has been going on in recent months of monetary and other penalties contained in the various taxation laws.
I intend to introduce further legislation as soon as I can to increase the effectiveness of the other penalty provisions of the taxation laws.
Part of the review of penalties has focussed on the rate of additional tax payable in cases involving international profit shifting arrangements, where avoidance that would otherwise occur has been eliminated by the new legislation brought in by this Government.
The Government has not overlooked its undertaking given in the Senate earlier this year that the level of additional tax applicable to such profit shifting arrangements would be reviewed, and the results of that review will be announced shortly.
An explanatory memorandum giving technical explanations of provisions of the Bill will be made available to Honourable Members, and I commend the Bill to the House.