Bills Digest No. 152  1998-99 A New Tax System (Wine Equalisation Tax Imposition-General) Bill 1999


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 and Copyright Details

Passage History

A New Tax System (Wine Equalisation Tax Imposition-General) Bill 1999

Date Introduced: 24 March 1999

House: House of Representatives

Portfolio: Treasury

Commencement: 1 July 2000

 

Purpose

To impose the tax that is payable under the wine tax law (within the meaning of the A New Tax System (Wine Equalisation Tax) Act 1999) to the extent that it is neither a duty of customs nor excise.

Background

1. Tax Reform Package

On 13 August 1998 the Federal Government released proposals for reform of the Australian tax system(1) of which, a goods and services tax (GST) was the centrepiece.

The tax reform plan proposes to:

  • Introduce a GST which eliminates sales tax and a range of nine other indirect taxes
  • Change Commonwealth-State financial relations by providing States and Territories with an independent revenue base
  • Implement significant changes to individual marginal tax rates
  • Implement a major rationalisation of family assistance
  • Replace the various existing taxation payment and reporting systems of company tax, provisional tax, PAYE,(2) PPS(3) and RPS(4) by one quarterly tax payment system, PAYG(5)
  • Introduce a new universal business number system
  • Move toward an entity taxation system which is directed toward the elimination of tax advantages between different business structures, and
  • Simplify the imputation system and introduce refunds for excess franking credits.

As part of the tax reform package the Government proposed that wine, and beverages consisting primarily of wine, will become subject to a Wine Equalisation Tax to replace the difference between the current 41 per cent wholesale sales tax and the proposed GST.

On 25 November 1998, the Senate referred issues relating to the GST and the new tax system to a Select Committee and three of its Reference Committees.(6) In February 1999 the Senate Select Committee produced its First Report.(7) The three Reference Committees produced their reports in March 1999.(8)

2. Wine Tax Overview

The proposed A New Tax System (Wine Equalisation Tax) Bill 1999 will introduce a wine equalisation tax (Wine Tax) from 1 July 2000 which is a tax additional to the proposed GST.

The introduction of Wine Tax means that after the abolition of wholesale sales tax and its replacement with a GST, wine prices are equalised back to current levels.

  • Wine Tax is a single stage tax applying generally to assessable dealings in wine, unless an exemption applies, at the wholesale level
  • Wine Tax is imposed on the wholesale selling price of wine
  • If wine is not sold by wholesale:
  • tax will be imposed on the retail sale or use of the wine, and
  • will be based on alternative values such as the notional wholesale selling price
  • If the wine has already been taxed, then a credit for the earlier tax will reduce the tax payable on the later dealing, and
  • Wine Tax is calculated on the GST exclusive value of wine in most cases.

For additional information on Wine Tax please refer to the Bills Digest for the A New Tax System (Wine Equalisation Tax) Bill 1999.

3. Constitutional restrictions 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 Wine Tax 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 Wine Tax if enacted: -

A New Tax System (Wine Equalisation Tax Imposition-General) Bill 1999

A New Tax System (Wine Equalisation Tax Imposition-Customs) Bill 1999, and

A New Tax System (Wine EqualisationTax Imposition-Excise) Bill 1999.

Main Provisions

1. Imposition of Wine Tax

Subclause 3(1) imposes the tax that is payable under the wine tax law.(9) The tax is imposed under the name of wine equalisation tax (wine tax).(10)

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

2. Rate

Clause 4 imposes the rate of the Wine Tax payable under the A New Tax System (Wine Equalisation Tax) Act 1999 at 29 per cent.

3. State Property

Clause 5 ensures that the legislation imposing Wine Tax does not apply to property of any kind belonging to a State.(11) The Territories are not included within the ambit of this section. Please refer to paragraph 1 in 'Concluding Comments' for further discussion on this topic.

Concluding Comments

1. Taxing property belonging to a State

Section 114 of the Constitution(12) 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.(13)

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. (14)

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.'(15)

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

2. Naming of tax reform package bills

From a practical perspective, the titles of all tax reform package Bills appear to be unnecessarily lengthy and indeed cumbersome. Presumably, the title has been used to make it easier for the Parliament to identify those Bills that form part of the tax reform package. 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.

3. Additional Comments in relation to Wine Tax

Additional commentary in respect of Wine Tax generally may be found in the Bills Digest for the A New Tax System (Wine Equalisation Tax) Bill 1999.

There are four main issues discussed in the 'Concluding Comments' section of that Bills Digest under the following headings:

  • Volumetric v Ad valorem

    The wine industry appears to be divided on whether any top-up tax should be based on a 'by value' tax (ad valorem) or a tax based upon alcohol content (volumetric). However, the Winemakers' Federation of Australia (WFA), while recognising that they represent members with divergent interests support an ad valorem based tax.
  • Rate - does it reflect revenue neutrality and is it 'locked in' at 29 per cent?

    The Wine Tax rate is 29 per cent. The rate is a critical issue for the viability and competitiveness of the industry and the WFA has suggested that the true Wine Tax level for revenue neutrality would be somewhere between 19.6 per cent and 24.5 per cent.
  • Wine Tax: should it be short term - to be removed in the long term?

    The WFA generally supports a Wine Tax but only in the short term. All other industry bodies strongly oppose Wine Tax. The Wine Tax is an additional or differential tax which represents a departure from the principles of simplification and equality underpinning the introduction of a GST.
  • Exemption for small business for cellar-door sales and promotional activity?

    The wine industry has suggested that cellar-door sales from small wineries should be exempt from Wine Tax. GST would, however, still apply to such sales.

    Under the current system, the Commonwealth collects 15 per cent of the 41 per cent sales tax on wine for the States and then rebates this amount to the States. The States then provide a rebate to wineries for cellar door sales, mail order and own use. This subsidy will apparently continue after the introduction of Wine Tax.(16)

Endnotes

  1. Treasurer, Tax Reform: not a new tax - a new tax system, Tax Reform Plan, 13 August 1998, Commonwealth of Australia.

  2. Pay As You Earn.

  3. Prescribed Payments System.

  4. Reportable Payments System.

  5. Pay As You Go.

  6. Senate Select Committee on A New Tax System; Senate Community Affairs References Committee; Senate Employment, Workplace Relations, Small Business and Education References Committee and Senate Environment, Communications, Information Technology and the Arts References Committee.

  7. Senate Select Committee on A New Tax System, First Report, February 1999.

  8. Senate Community Affairs References Committee, The Lucky Country Goes Begging, Report on the GST and a New Tax System, March 1999; Senate Employment, Workplace Relations, Small Business and Education References Committee, Report of the Inquiry into the GST and A New Tax System, March 1999 and Senate Environment, Communications, Information Technology and the Arts References Committee, Inquiry into the GST and a New Tax System, March 1999.

  9. A New Tax System (Wine Equalisation Tax) Act 1999

    Wine tax law means:

    1. this Act, and

    2. any Act that imposes wine tax, and

    3. the A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999 so far as it relates to the Acts covered by paragraphs (a) and (b), and

    4. the Taxation Administration Act 1953, so far as it relates to any Act covered by paragraphs (a) to (c), and

    5. any other Act, so far as it relates to any Act covered by paragraphs (a) to (d) (or to so much of that Act as is covered), and

    6. regulations under an Act, so far as they relate to any Act covered by paragraphs (a) to (e) (or such much of that Act as is covered).

  10. A New Tax System (Wine Equalisation Tax) Act 1999

    Wine tax means tax that is payable under the wine tax law and imposed as wine equalisation tax by any of these:

    1. the A New Tax System (Wine Equalisation Tax Imposition-General) Act 1999, or

    2. the A New Tax System (Wine Equalisation Tax Imposition-Customs) Act 1999, or

    3. the A New Tax System (Wine Equalisation Tax Imposition-Excise) Act 1999.

  11. 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.

  12. 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.

  13. The Constitution, section 6.

  14. South Australia v Commonwealth (1992) 174 CLR 235 at p. 248.

  15. Queensland v Commonwealth (1987) 162 CLR 74 at p. 98.

  16. Senate Select Committee on A New Tax System, Winemakers' Federation of Australia Submission No. 938, at p. 38.

Contact Officer and Copyright Details

Lesley Lang
13 April 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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