 |
Bills Digest No. 106 1998-99
A New Tax System (End of Sales Tax) Bill 1998
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest does
not have any official legal status. Other sources should be consulted
to determine the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details
A New Tax System (End of Sales Tax) Bill 1998
Date Introduced: 2 December 1998
House: House of Representatives
Portfolio: Treasury
Commencement: The day after specified goods
and services tax legislation(1) proposed to commence 1 July 2000 has
received Royal Assent.
The purpose of the A New Tax System
(End of Sales Tax) Bill 1998 (the Bill) is to remove the sales tax liability
currently imposed on certain goods. In the Second Reading Speech to
the Bill on 2 December 1998, the Treasurer, Mr Costello, said the 'Bill
abolishes the wholesale sales tax.'
Sales Tax: A Definition
The existing sales tax in Australia is, generally speaking,
a tax, levied on an ad valorem [ie a proportion of the value
of the goods] basis on sales of certain identified goods by manufacturers
and wholesalers to retailers. It is a wholesale sales tax, defined in
the Hawke Government's draft White Paper, 'Reform of the Australian
Tax System' (RATS) published in June 1985, as a 'tax levied on goods
at the point of last wholesale sale.'(2)
A brief history of Sales Tax in Australia
The Commonwealth first introduced sales tax in 1930.
In the Budget Speech on 9 July 1930, the then Prime
Minister and Treasuer, Mr Scullin, said that in formulating the 1930-31
budget the Government was 'faced with a financial depression without
parallel in the 30 years' life of the Commonwealth.'(3) Prices for Australia's
primary produce, and hence revenue from exports, had fallen considerably.
Overseas loans to Australia had ceased. Drought was adversely affecting
agricultural production. Imports were restricted, or in some cases prohibited,
with the result that customs revenue was much reduced.
In an effort to balance the budget Mr Scullin announced,
among other things, the imposition of a sales tax of 21/2 per cent,
on the sale prices of commodities sold in Australia other than those
which are to be exempted.(4) Exemptions included sales by primary producers
and sales of goods for export. Food was also exempt from the tax.
During the second reading debate to the Sales Tax Assessment
Bill (No 1) Mr Scullin again noted the loss of customs revenue and the
need for the Commonwealth to look to other sources of revenue. He noted
that the tax was often introduced as an emergency measure and 'the first
important country to impose the tax was Germany, in 1918.'(5)
In response to a question from Mr Francis, Nationalist
Party, United Australia Party and then Liberal Party Member for Moreton,
as to whether the sales tax was a temporary measure, Mr Scullin said
that he did not know how long it would operate. Further he said:
I do not assert that it is temporary or emergency
legislation. We have to face the fact that we cannot continue to
depend on customs duties from imports artificially stimulated by
borrowing abroad. We have not been conducting our affairs on sound
lines. It is sounder to impose indirect taxation of this kind on
goods sold in the country, than to depend on customs duties upon
imports artificially swollen by placing our country in debt to the
foreign money-lenders. The Government hopes that in the course of
time the rates may be reduced and the exemptions increased.(6)
On 28 July 1930 in recommending to the House the imposition
of the wholesale sales tax, Mr Riley, ALP Member for South Sydney, said
that it was a preferable tax to a retail sales tax. A retail sales tax,
Mr Riley said would mean all shops would need to keep close accounts
of all sales and that 'an army of inspectors' would be required to 'police
the working of the scheme.'(7) Further, Mr Riley said a wholesale sales
tax is easily collected and although it is 'one of the soundest methods
of taxation', he prophesied that its imposition would not be permanent.(8)
Dr Earle Page, Australian County Party, first noted
that the Labour [sic] Party 'has been renown in the Federal Parliament
as the pioneer of new taxation'.(9) He then stated that the 'sales tax
is essentially undemocratic':
Its operation is inverse to that of the income
tax, which makes a progressively higher levy as the income increases.
The sales tax is a consumption tax, purely and simply.(10)
Dr Page continued:
Being a consumption tax, the burden of taxation
is to be shifted from persons with large incomes to those whose
incomes are small.(11)
In his criticism of the proposed sales tax legislation,
Mr Parkhill, Nationalist, later United Australia Party Member for Warringah,
queried why the tax was not to be collected at the point of last sale.
In answering his own question, Mr Parkhill said to impose the tax at
the point of last sale would be to continually remind the public that
they are paying a tax. Thus 'in order to avoid the political consequences
of the resentment that would inevitably arise, the Treasurer is adopting
the circuitous method of making the wholesaler a tax collector for the
Government.'(12)
In the event, a single rate of tax was imposed and
this rate remained in operation until 1940, 'when the Second and Third
Schedules were included in the Sales Tax (Exemptions and Classifications)
Act.(13) At the time of the Asprey Report, the early 1970s, there were
three rates of tax, 271/2 per cent on consumer durables such as televisions
and stereos as well as cosmetics and furs; 21/2 per cent on furniture
and 271/2 per cent on cars. Food, clothing and services were exempt
from the tax, and the Asprey Report noted this meant that 'sixty per
cent of personal consumption expenditure ... is not directly subject
to tax.'(14)
At present there are various classifications and rates.
Examples of these different rates are:
- exempt goods such as wool packs, fencing, pest killers, certain
food and drink for human consumption, clothes, drugs and medicines,
contraceptives, books, imported antiques, raffia and imported horses
- household goods such as soft furnishings, baths, sinks toilets,
confectionery, flavoured milk, and maps: 12%
- general rate goods: 22%
- luxury goods such as furs, watches and televisions: 32%
- cars up to $36,995: 22%
- cars over $36,995: 45%
- alcoholic wine and cider: 26%
The wholesale sales tax has been much criticised. In
the Reform of the Australian Tax System, published in 1985, for
example, it is stated that the lack of comprehensiveness of the tax
and its multiple tax rate structure lead to various problems including:
- the narrow tax base means that higher tax rates are required to
generate a given level of revenue.
- the tax impacts differentially on various commodities and so interferes
with consumption and production decisions
- individuals with the same income bear different tax burdens merely
because they have different consumption patterns, and
- the extent of commodity exemptions and the multiple tax rates lead
to greatly increased administrative costs.'(15)
Similarly, Dr Neil Warren, Associate Professor of Economics
at the University of New South Wales has observed that the existing
sales tax is not broadly based, it is not transparent and which goods
are taxed is not well understood.(16)
In response to the often quoted criticism of the wholesale
sales tax that certain luxury goods, such as caviar, are exempt while
children's toys are taxed, Mr Damien Walsh, National Practice Leader,
Indirect Taxes, Arthur Andersen, states that the simple answer is to
tax caviar and exempt children's toys. This criticism of the wholesale
sales tax, Mr Walsh continues 'cannot seriously be presented as a rationale
for the introduction of a major new, complex and costly tax system into
Australia.'(17) Further, Mr Walsh observes that many of the stated deficiencies
of the wholesale sales tax apply equally, if not more so, to the goods
and services tax.(18)
Clause 3 repeals sales tax on assessable dealings if
the dealing occurs on or after the commencement of the Act. The Act
will not commence unless other specified goods and services tax legislation
has first commenced.(19) This avoids the possibility of abolishing sales
tax without first having introduced a goods and services tax.
An 'assessable dealing' is defined in section 5 of
the Sales Tax Assessment Act 1992 as meaning any dealing covered
by Table 1 of that Act. For example, a 'wholesale sale by a person who
manufactured the goods in the course of any business' is an assessable
dealing.
- The Act commences after section 1-2 of the A New Tax System (Goods
and Services Tax) Act 1998; section 2 of the A New Tax System (Goods
and Services Tax Imposition - Excise) Act 1998; section 2 of the A
New Tax System (Goods and Services Tax Imposition - Customs) Act 1998;
section 2 of the A New Tax System (Goods and Services Tax Imposition
- General) Act 1998; and section 2 of the A New Tax System (Goods
and Services Tax Administration) Act 1998 commence, that is on 1 July
2000.
- Reform of the Australian Tax System AGPS 1985, p. xiv.
- Hansard, House of Representatives, 9 July 1930, p. 3888.
- Ibid., p. 3902.
- Ibid., 30 July 1930, p. 4930.
- Ibid., p. 4935.
- Ibid., 28 July 1930, p. 4771.
- Ibid., Mr Riley also prophesied that:
'The time is not to far distant when the State Parliaments
will have to go, and we shall have one national Parliament for the
whole Commonwealth. That would be a true economy' (p 4770).
- Ibid., 5 August 1930, p. 5275.
- Ibid., p. 5276.
- Ibid., p. 5279.
- Ibid., 5August 1930, 5287.
- Taxation Review Committee, Full Report, 31 January 1975 (the Asprey
Report), AGPS, Canberra 1975, p. 523.
- Ibid., p. 513.
- Reform of the Australian Tax System AGPS 1985, p. 117.
- N Warren Tax Facts and Tax Reform Australian Tax Research
Foundation 1998, p. 28.
- D Walsh 'Comment on "Why have so many countries adopted VAT?"'
in Binh Tran Nam (ed) Tax Reform and the GST: An International
Perspective Prospect 1998, p. 81.
- Ibid.
- refer endnote 1.
Max Spry, Consultant
8 February 1999
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and
Members of the Australian Parliament. While great care is taken to ensure
that the paper is accurate and balanced, the paper is written using
information publicly available at the time of production. The views
expressed are those of the author and should not be attributed to the
Information and Research Services (IRS). Advice on legislation or legal
policy issues contained in this paper is provided for use in parliamentary
debate and for related parliamentary purposes. This paper is not professional
legal opinion. Readers are reminded that the paper is not an official
parliamentary or Australian government document.
IRS staff are available to discuss the paper's contents with Senators
and Members
and their staff but not with members of the public.
ISSN 1328-8091
© Commonwealth of Australia 1999
Except to the extent of the uses permitted under the Copyright Act
1968, no part of this publication may be reproduced or transmitted
in any form or by any means, including information storage and retrieval
systems, without the prior written consent of the Parliamentary Library,
other than by Members of the Australian Parliament in the course of
their official duties.
Published by the Department of the Parliamentary Library, 1999.
|
 |
