Bills Digest No. 82   1998-99 A New Tax System (Goods and Services Tax Imposition - General) Bill 1998


Numerical Index | Alphabetical Index

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
Concluding Comments
Endnotes
Contact Officer & Copyright Details

Passage History

Date Introduced: 2 December 1998

House: House of Representatives

Portfolio: Treasury

Commencement: 1 July 2000

Purpose

To impose the tax that is payable under the GST law, within the meaning of the A New Tax System (Goods and Services Tax) Act 1998.

Background

1.0 Recent History

On 13 August 1998 the Government released details of its long awaited tax reform plan, embodied in the publication entitled Tax Reform: not a new tax, a new tax system.

A key aspect of the Tax Reform Plan is the introduction of a Goods and Services Tax to replace the current Wholesale Sales Tax, as well as a number of State indirect taxes. The Tax Reform Plan as a whole formed a major component of the Government's policy platform leading up to the Federal election held on 3 October 1998.

The Tax Reform Plan foreshadowed a targeted consultation process to assist in determining the final design of five key matters relating to the proposed GST, they being the GST-free areas of health, education, religious services and the non-commercial activities of charities, and the special transitional arrangements for motor vehicles.

That consultation process was undertaken by the Tax Consultative Committee, chaired by Mr David Vos, a tax partner at PricewaterhouseCoopers, which was appointed by the Treasurer on 26 October 1998. The Committee's report was presented to the Treasurer on 13 November 1998 and the recommendations therein taken into account in drafting the legislation now before the Parliament.

Following the Governments re-election, a package of 16 Bills were introduced on 2 December 1998 to implement a GST as well as some of the other tax reform measures contained in its Tax Reform Plan. Six of those Bills introduce the GST, namely:

  • A New Tax System (Goods and Services Tax) Bill 1998
  • A New Tax System (Goods and Services Tax Administration) Bill 1998
  • A New Tax System (Goods and Services Tax Transition) Bill 1998
  • A New Tax System (Goods and Services Tax Imposition - General) Bill 1998
  • A New Tax System (Goods and Services Tax Imposition - Customs) Bill 1998, and
  • A New Tax System (Goods and Services Tax Imposition - Excise) Bill 1998.

2.0 GST Overview

The GST proposed is a broad-based indirect tax on final private consumption in Australia. It will tax the consumption of most goods, services and any other things, including things imported into Australia, but not to consumption outside Australia. The GST rate proposed is 10%.

The GST is based on the Value Added Tax (VAT) system, which has been adopted by nearly all OECD countries and more than 80 others around the world. The GST concept of taxing final private consumption is achieved by:

  • imposing tax on supplies made by entities registered for GST purposes, and
  • allowing those entities to claim a full credit for any GST they have paid on business purchases (or inputs). Such credits will be known as input tax credits.

Consistent with other GST and VAT regimes, there will be two types of non-taxable supplies, 'GST-free' and 'input taxed', known in most other countries with a GST or VAT as 'zero rated' and 'exempt' respectively.

GST-free supplies will not be taxed and input tax credits will be allowed on things acquired to make the supply. The main activities that will be GST-free include exports, certain expenditure by tourists, health and medical care, education, childcare, charitable activities and religious services.

Input taxed supplies will similarly not be taxed, however no input tax credits will be allowed on things acquired to make the supply. The main activities that will be input taxed are financial services and residential rents.

The main Bill implementing the GST is the A New Tax System (Goods and Services Tax) Bill 1998. The Bills Digest for that Bill will contain a more detailed history of events leading up to the introduction of the GST and, naturally, a detailed account of how the proposed GST will operate.

3.0 Constitutional Restrictions on Federal Income Tax Law Create Necessity for Separate Taxation Acts

The Commonwealth Parliament derives its powers from the Commonwealth of Australia Constitution Act. Its power with respect to taxation is found in section 51, Placitum (ii), which states that the 'Parliament shall, subject to this constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to: - (ii) Taxation; but so as not to discriminate between States or parts of States.'

Other provisions in the Constitution affect the power to tax, including section 55. Section 55 reads 'Laws imposing taxation shall deal only with the imposition of taxation, and any provision therein dealing with any other material shall be of no effect.'

Accordingly the convention of separate Acts for those dealing with the subject of tax, its assessment and collection and those imposing the tax, is actually a legislative requirement pursuant to section 55 of the Constitution.

Section 55 continues to state that 'Laws imposing taxation, except laws imposing duties of customs or of excise, shall deal with the subject of taxation only; but laws imposing duties of customs shall deal with duties of customs only, and laws imposing duties of excise shall deal with duties of excise only.'

Thus it is necessary for laws imposing the GST to be separated into three Acts. One Act imposing taxation, a second Act imposing duties of customs and a third Act imposing duties of excise.

The following bills will impose the GST if enacted: -

  1. A New Tax System (Goods and Services Tax Imposition-General) Bill 1998

  2. A New Tax System (Goods and Services Tax Imposition-Customs) Bill 1998, and

  3. A New Tax System (Goods and Services Tax Imposition-Excise) Bill 1998

 

Main Provisions

1.0 Imposition

Subclause 3(1) states that the tax that is payable under the GST law(1) (within the meaning of the A New Tax System (Goods and Services Tax) Act 1998) is imposed by this section under the name of goods and services tax (GST).(2)

Subclause 3 (2) imposes the GST only so far as it is neither a duty of customs nor a duty of excise within the meaning of section 55 of the Constitution. Please refer to the discussion above at paragraph 3.0 for further information in relation to this issue.

2.0 Rate

Clause 4 imposes the rate of the goods and services tax payable under the A New Tax System (Goods and Services Tax) Act 1998 at 10 per cent.

3.0 State Property

Clause 5 ensures that the legislation imposing the GST does not apply to property of any kind belonging to a State.(3) The Territories are not included within the ambit of this section. Please refer to 'Concluding Comments' for further discussion on this topic.

Concluding Comments

1.0 The Constitution does not protect the States from a GST on transactions which affect its property unless the tax can truly be characterised as a tax on the ownership or holding of property

Section 114 of the Constitution (4) is one of the few sections in the Constitution defining the nature of intergovernmental immunities. It prevents the Commonwealth Parliament from legislating so as to tax property of any kind belonging to a State. The definition of a 'State' does not include a Territory.(5)

Judicial decisions appear to have adopted a narrow interpretation of section 114 so as only to protect the States against a tax imposed by reason of the ownership or holding of property. (6)

This approach has led the High Court to decide, for example, that section 114 did not prevent the Commonwealth from taxing car and housing fringe benefits provided by the State to its employees. This is because section 114 'protects the property of a State from a tax on the ownership or holding of property but it does not protect the State from a tax on transactions which affect its property, unless the tax can truly be characterised as a tax on the ownership or holding of property.'(7)

Thus section 114 does not afford the States with protection from a GST in relation to every form of transaction to which a State is a party. It is restricted to prohibiting the imposition of a goods and services tax where such a tax is characterised as one on the ownership or holding of property.

2.0 Naming of GST bills

From a practical perspective, the titles of all GST Bills appear to be unnecessarily lengthy and indeed cumbersome. The words 'A New Tax System' could be deleted from each title without affecting the relevance of the title to the particular piece of legislation. Presumably, the title has been used to make it easier for the Parliament to identify those Bills which form part of the GST package. The use of lengthy titles may, however, cause some problems for practitioners who will be referring to the legislation in later years.

Endnotes

  1. A New Tax System (Goods and Services Tax) Act 1998
    GST law means:
    (a) this Act; and
    (b) any Act that imposes GST; and
    (c) the A New Tax System (Goods and Services Tax Transition) Act 1998; and
    (d) the Taxation Administration Act 1953, so far as it relates to any Act covered by paragraphs (a) to (c); and
    (e) any other Act, so far as it relates to any Act covered by paragraphs (a) to (d) (or so much of that Act as is covered); and
    (f) regulations under any Act, so far as they relate to any Act covered by paragraphs (a) to (e) (or so much of that Act as is covered).
  2. A New Tax System (Goods and Services Tax) Act 1998
    GST means tax that is payable under the GST law and imposed as goods and services tax by any of these:
    (a) the A New Tax System (Goods and Services Tax Imposition-General) Act 1998; or
    (b) the A New Tax System (Goods and Services Tax Imposition-Customs) Act 1998; or
    (c) the A New Tax System (Goods and Services Tax Imposition-Excise) Act 1998.
  3. Property of any kind belonging to a State has the same meaning as attributed to it by judicial interpretation in respect of section 114 of the Constitution. It is not actually defined in section 114.
  4. Section 114: A State shall not, without the consent of the Parliament of the Commonwealth, raise or maintain any naval or military force, or impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State.
  5. The Constitution, section 6
  6. South Australia v Commonwealth (1992) 174 CLR235, 248.
  7. Queensland v Commonwealth (1987) 162 74, 98.

Contact Officer and Copyright Details

Lesley Lang and Simon Lang
21 January 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.

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