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Membership of the Committee
| Senate Economics Legislation Committee |
| Core Members |
|
| Senator B Gibson (Chair) |
(Tasmania, LP) |
| Senator S Murphy (Deputy Chair) |
(Tasmania, ALP) |
| Senator G Campbell |
(New South Wales, ALP) |
| Senator G Chapman |
(South Australia, LP) |
| Senator A Murray |
(Western Australia, AD) |
| Senator J Watson |
(Tasmania, LP) |
| |
|
| Substitute Members |
|
| Senator B Greig to substitute for Senator Murray for resources issues |
| |
|
| Participating Members |
|
| Senator E Abetz |
(Tasmania, LP) |
| Senator R Boswell |
(Queensland, NPA) |
| Senator B Brown |
(Tasmania, AG) |
| Senator P Calvert |
(Tasmania, LP) |
| Senator S Conroy |
(Victoria, ALP) |
| Senator P Cook |
(Western Australia, ALP) |
| Senator H Coonan |
(New South Wales, LP) |
| Senator W Crane |
(Western Australia, LP) |
| Senator A Eggleston |
(Western Australia, LP) |
| Senator J Faulkner |
(New South Wales, ALP) |
| Senator A Ferguson |
(South Australia, LP) |
| Senator J Ferris |
(South Australia, LP) |
| Senator B Harradine |
(Tasmania, Ind) |
| Senator S Knowles |
(Western Australia, LP) |
| Senator R Lightfoot |
(Western Australia, LP) |
| Senator K Lundy |
(Australian Capital Territory, ALP) |
| Senator B Mason |
(Queensland, LP) |
| Senator J McGauran |
(Victoria, NPA) |
| Senator M Payne |
(New South Wales, LP) |
| Senator J Quirke |
(South Australia, ALP) |
| Senator A Ridgeway |
(New South Wales, AD) |
| Senator C Schacht |
(South Australia, ALP) |
| Senator N Sherry |
(Tasmania, ALP) |
| Senator T Tchen |
(Victoria, LP) |
| Senator J Tierney |
(New South Wales, LP) |
| |
|
| Secretariat |
|
Peter Hallahan, Secretary
Alistair Sands, Principal Research Officer
Angela Lancsar, Executive Assistant
|
SG.64, Parliament House
Canberra ACT 2600 |
Tel: 02 6277 3540
Fax: 02 6277 5719 |
Report
Reference of the Bills to the Committee
1.1
The following package of Bills was introduced
into the House of Representatives on 11 May 2000:
- Sales Tax (Customs) (Industrial Safety Equipment) Bill 2000
- Sales Tax (Excise)(Industrial Safety Equipment) Bill 2000
- Sales Tax (General) (Industrial Safety Equipment) Bill 2000
- Sales Tax (Industrial Safety Equipment) (Transitional Provisions)
Bill 2000.
1.2
Following a report by the Selection of Bills
Committee, the Senate referred the Bill to this Committee on 8 June 2000 for examination and report by 22 June 2000.[1]
1.3
In particular, the Committee was asked to
examine the provisions of the Bills which will remove an existing sales tax
exemption on, among other things, sunglasses that are used for protective purposes
by people in outdoor occupations; the implications on the not-for-profit sector
of this increased impost; and the retrospectivity of these measures.
The Committee’s Inquiry
1.4
The Committee invited a number of interested
parties to make submissions on the Bills, in addition to advertising the
inquiry on the Parliament website. The Committee received 3 submissions to the
inquiry (see Appendix 1).
1.5
The Committee held a public hearing on the Bills
in Canberra on 19 June 2000. The witnesses who appeared at the
hearing are shown in Appendix 2.
The Bills
1.6
The Bills aim to modify the operation of the Sales
Tax (Exemptions and Classifications) Act 1992 to ensure that industrial
safety equipment is only exempt from sales tax if it is of a kind that is
mainly used to protect persons engaged in industrial operations.
Background
1.7
The legislation is designed to restore the
original intention of the sales tax exemption law that only a narrow
range of industrial safety equipment would be exempt from sales tax. However,
two recent Federal Court decisions have had the effect of expanding the range
of exempt equipment. These decisions interpreted the wording of 1992 Sales Tax
Exemption (ST (E&A)) Act more liberally than had been the Government’s
intention[2]
with the following effect:
As a result of these decisions, it is possible that a wide range
of goods could now qualify for sales tax exemption as industrial safety
equipment. Most of this equipment is only used to a minor extent by persons
engaged in industrial operations. The equipment is mainly used outside
industrial operations and does not have a primary purpose of protecting persons
engaged in industrial operations.3[3]
1.8
In particular, the decision Commissioner of
Taxation v. NSW Cancer Council (1999) FCA 1146, held that Cancer Society
sunglasses which complied with Australian Standard 1067.1 for reduction of sun
glare were sales exempt because some outdoor workers use them to protect their
eyes from glare and cancer. The implications of the decision are twofold.
According to the Explanatory Memorandum to the bills:
The effect of that decision is that all sunglasses that meet
Australian Standard 1067.1 and that are not fashion spectacles would be exempt
from sales tax, even though most sunglasses are used as personal protection in
activities unrelated to industrial operations or are used as fashion
accessories. That decision is also in direct conflict with the policy
underlying the sales tax exemption for spectacles in Item 85 in Schedule 1 to
the ST (E&C) Act which specifically excludes sunglasses from exemption.[4]
Measures in the Bills
1.9
The Bills are characterised as ‘modification’
Bills in that they modify the effect or operation of the ST (E&A) Act, but
do not amend it. This is achieved mainly by substituting the word ‘ordinarily’
with ‘mainly’ so that the key clause defining the scope of the exemption will
read:
Equipment of a kind mainly used in the course of
industrial operations to protect persons engaged in those operations...[emphasis
added]
1.10
‘Mainly’ is defined to mean to the extent of
more than 50 per cent of the time. The types of goods intended to be covered by
the exemption include masks, respirators, shields, goggles, visors, helmets,
belts and machine guards.
1.11
The Bills apply from 5 October 1999 when the
Government announced its intention to modify the existing legislation.
According to the Second Reading Speech:
The Government announced on 5 October 1999 that the sales tax
law would be amended so that to qualify for sales tax exemption, goods would
need to be of a kind that were mainly used to protect persons engaged in
industrial operations. Refund claims lodged on or after 5 October 1999 which do
not meet this criteria would be denied. The Government was concerned that
refunds should not result in windfall gains for retailers who have passed the
cost of the sales tax on to their customers. Accordingly, refund claims lodged
before 5 October 1999 that meet the requirements of the existing exemption
would only be paid where it can be shown that the benefit of the credit has
passed to the end consumer.
1.12
The pass on provisions will allow for credit
claims (ie, refunds of sales tax) for items sold before 5 October 1999 that do
not meet the ‘mainly’ test only where the benefit of the credit has been passed
onto the end consumer. Credit claims will be allowed for items that meet the
new ‘mainly’ test. These provisions will also allow wholesalers who sold goods
as sales tax exempt following the Federal Court decisions to claim a credit so
long as it can be shown that the benefit of the exemption (ie, a lower price)
was passed on to not only the retailer but also the end consumer. Where the
benefit has not been passed on, credit claims will not be allowed.
Issues in Evidence
1.13
All three groups of witnesses that gave evidence
to the Committee – the Australian Cancer Society, the Sunglasses Association of
Australia, and the Institute of Chartered Accountants in Australia (ICAA)[5] – were opposed to the Bills,
although their reasons differed to some degree. In broad terms, the Cancer
Society and Sunglasses Association were opposed to the Bills particular effect
in reversing the exemption on sunglasses. The ICAA’s criticism of the Bills
reflected its more general opposition to the principle of retrospectivity,
while all three bodies pointed to the impracticality of the passing on
provisions so far as they relate to sunglasses. The Committee examines these
issues below, in addition to examining the implications for the not-for-profit
sector of the removal of sales tax on sunglasses.
The Bills Effect on Sunglasses
1.14
Both the Cancer Society and Sunglasses
Association pointed to not only occupational health and safety factors but also
the wider public health benefits of exempting sun glare resistant sunglasses
from sales tax. Both bodies stated that Australia has the highest levels of
ultraviolet radiation in the world which causes or contributes to injury or
diseases of the eye, skin and region of the eye. Both argued that the disease
prevention role of sunglasses justified an exemption from sales tax. According
to Dr Penman of the Cancer Society:
The Australian Cancer Society recommends that all Australians
wear sunglasses to protect their eyes when exposed to UV radiation and visible
light. Government bodies themselves, including WorkSafe, and departments that
are responsible for occupational health and safety issues, as well as employer
and employee organisations, also recommend sunglasses for protection of
workers. The efficacy of this measure in protection is unquestioned by all
parties. The most effective way to protect the eyes against exposure to solar
radiation is to wear sunglasses that comply with Australian Standard 1067.1 and
a broad-brimmed hat, reducing ultraviolet radiation exposure to the eyes by up
to 98 per cent. Any product that protects the Australian public from the risks
associated with solar radiation deserves concessional sales tax treatment.
Sunglasses complying with the standards should be afforded the same exemption
as had already been established for sunscreen.[6]
1.15
In evidence, witnesses from the Australian
Taxation Office (ATO) indicated that the public health benefits of sunglasses
were not at issue. Rather, the main point of the legislation concerned the
Parliament’s intention as to what items should be exempt from sales tax on
industrial safety grounds. Mr McCarthy representing the ATO noted:
It really is a question of the public policy about what the
parliament intends to have exempt as safety equipment under item 20 [in the
legislation]. We would suggest that the specific exclusion of sunglasses under
exemption item 85, which deals with spectacles, indicates that it is not the
public policy of the government to provide sunglasses. One would suggest that
the proposed treatment under the GST would also indicate the public policy
position of the government, and the parliament, is not to provide exemption for
sunglasses.[7]
1.16
Mr McCarthy noted also that the legislation is
not targeted at sunglasses but is intended to prevent claims for a wider range
of goods to be treated as exempt.[8]
Mr McCarthy indicated that the ATO is currently facing litigation which is
seeking exemption for illuminated exit lights and scaffolding. Mr McCarthy also
explained that the estimated risk to the revenue of $1.9 billion reflects the
ATO’s concern that the Federal Court’s decisions open the way for an ‘endless’
range of goods to be exempt from sales tax.[9]
Implications for the Not-For-Profit Sector
1.17
The Cancer Society estimated that the direct
financial implications of the Bills on the Society could be close to $1
million.[10]
Dr Penman stated that the loss of the sales tax refund would deprive the Cancer
Society from ploughing the refund back into cancer prevention, research,
education and support.
1.18
With regard to the Bills’ pass on provisions, Dr
Penman noted that the Cancer Society had either passed on the benefits to
consumers in the form of price reductions and refunds or would use the funds to
support public health programs.[11]
As such, it is mistaken, in the Society’s view, to suggest that it would enjoy
windfall profits in the event that it did not pass on the refund to consumers.
In response, the ATO stated:
The Cancer Society did point out in their written submission
that they have an intention to use the funds that they might otherwise receive
back as refunds for worthy purposes of research, and we accept that. Our
position, unfortunately, is that we would be unable to discriminate between the
worthy motives of the Cancer Society and other retailers who have other
motives. The motives of retailers are just not relevant.[12]
Retrospectivity
1.19
In evidence, witnesses raised two main concerns
about the retrospectivity of the legislation, namely:
- that it was wrong in principle; and
- that the pass on provisions are impractical with respect to the
sunglasses industry.
1.20
The ICAA opposed the retrospective aspect of the
legislation at both the general level of principle and in the particular case
of the legislation’s effect on sunglasses. Mr Firmstone representing the ICAA
indicated that the Institute sees legislation which has retrospective
implications as ‘absolutely undesirable’ and believes it is only justified
under limited circumstances, such as in the event of massive rorting of the tax
system. In the ICAA’s view, such special circumstances do not apply in relation
to sunglasses.
1.21
Moreover, Mr Firmstone suggested that the
retrospectivity of the Bills may send a negative message to the community that
implies there is no point in challenging the ATO’s interpretation of the law
because, even if a challenge were successful in court, the court’s decision
could be reversed.[13]
Mr Guy representing the Sunglasses Association advanced a similar argument:
Our position is we have now been through two stages of the court
process and won on both occasions. You would really have to question the logic
then of, after having won on these two occasions, that a law would be changed
retrospectively to make the whole process a waste of time for everybody. I
wonder under what circumstances anyone would take on the Australian Taxation
Office in the future where there is no confidence, after having gone through
these two and possibly three processes, that the law might then be changed to
make it all a waste of time.[14]
1.22
In responding to these general claims, Mr
McCarthy of the ATO made it clear that the legislation relates to a particular
case with significant implications for the revenue and does not reflect the
ATO’s general position on court decisions:
We will, in most cases, accept the decision given to us by the
Federal Court or the High Court and issue rulings as to how the law ought to
apply. Nevertheless, we do have a responsibility to advise government if the
impact is significant, and in this case we suggest the impact is significant in
the form of the revenue involved and also because it is quite obviously giving,
in our view, an exemption for goods that the parliament never intended should
be exempt. We accept the principles that were put in the ICAA’s submission
about retrospectivity – that is, the fact that it should provide natural justice
– again, balanced by what we see in our case as a responsibility to ensure that
a significant amount of revenue is not lost.[15]
1.23
Witnesses also criticised the retrospective
aspects of the Bills which relate to the pass on/windfall profit provisions.[16] Both the Cancer Society and
the Sunglasses Association pointed to the practical difficulties involved in
determining whether sales tax had been passed onto consumers or absorbed by
retailers prior to 5 October 1999. Both bodies claimed that these practical hurdles
would mean they would not be able to obtain a refund for sales predating 5
October 1999 under the legislation, a situation that each argued was unfair.[17]
1.24
The ATO witnesses accepted the difficulties
facing the sunglasses industry in passing on benefits to consumers but noted
that other industries would not face the same problems.[18]
Recommendation
1.25
The Committee recommends that the Senate pass
the Bills.
Senator the Hon Brian Gibson
Chairman
Appendices:
Appendix 1: List of Submissions
- The Institute of
Chartered Accountants in Australia
- Australian Cancer
Society
- Fallon Group
Appendix 2: List of Witnesses Appearing Before the Committee
Monday, 19 June 2000
Committee Room 1S3, Parliament House, Canberra
Australian
Cancer Society
Dr Andrew
Penman, Chair, Public Health Committee
Sunglasses
Association of Australia
Mr Adrian
Firmstone, Consultant
Mr Julian Guy,
Member
Mr Grant
Wilson, Member representing Oakley Sunglasses
Australian
Taxation Office
Mr Nigel
Goodwin, Executive Level Officer
Mr John
McCarthy, Assistant Commissioner
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