Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)BROAD FRAMEWORK OF SALES TAX LAW
The following broad framework of the sales tax law is provided to assist in an understanding of the changes being made by this package of 3 Bills.
Sales tax is a single stage tax levied on, or in relation to, goods. In general, it is designed to fall at the wholesale level, but is payable by manufacturers and importers, as well as by wholesalers, the tax in each case being based on a sale value equivalent to the wholesale value of the goods. The overall intention is that goods that are produced in, or imported into, Australia for use or consumption here will bear the tax unless they are specifically exempted from it. Second-hand goods that have been used in Australia are not ordinarily taxable, but imported goods that have been used overseas are normally taxable on a basis corresponding with that applicable to new goods.
The levy is not limited to sales. Where goods have not already borne tax it could, for example, fall on leases of those goods or on the application of those goods to a taxpayer's own use. It may also fall on the entry for home consumption of imported goods where they are not entered for sale by a wholesaler, e.g., where they are entered by a retailer or consumer. Where a person pays a royalty in relation to goods in circumstances where the amount of the royalty is not part of the sale value of the goods, tax is payable by the person paying the royalty at the rate applicable to the goods.
Tax is also levied on certain Australian manufactured goods sold by inwards duty free shops to persons who, if they had imported those goods as passengers or crew of aircraft arriving in Australia, would be liable to tax.
Manufacturers and wholesalers are required to register with the Taxation Office, unless they deal only in exempt goods. When registered they are issued with a certificate of registration and by quoting the certificate number when purchasing goods or entering imported goods for home consumption they can acquire the goods free of tax. The system of quoting certificates is designed to defer payment of the tax until the last wholesale sale.
Registered manufacturers and wholesale merchants are required to furnish monthly returns of their transactions to the Taxation Office. The tax is basically a self-assessment one and persons furnishing returns are required to calculate the tax payable on transactions for the month, and to forward payment of that tax with each return. Importers are required to pay tax when clearing goods through Customs unless they are registered persons who quote their certificates for the goods.
Reflecting the fact that sales taxpayers are obliged to pay tax to the Taxation Office in this way they, in turn, when selling goods to a retailer or other customer, charge to the retailer or customer an amount equal to the tax that they are liable to remit when forwarding a sales tax return for the month. In that way, the tax is passed on to the consumer.
The sales tax legislation is contained in a number of separate Acts. In addition, there is a series of Regulations that are complementary to those Acts. The Acts and Regulations must be regarded as a whole to properly understand the wholesale sales tax.
There are 11 basic Sales Tax Acts (Rating Acts) that specify the rates at which tax is payable. Where royalties are payable in respect of goods, and the royalties are not subject to tax under the Rating Acts, 3 further Sales Tax Acts impose tax on the royalty payments but at the rates that are applicable to the particular goods under the basic Rating Acts. Complementary to the basic Rating Acts are 10 Sales Tax Assessment Acts providing the machinery for assessment, collection and administration of the tax imposed by the Sales Tax Acts. There is also a Sales Tax Assessment Act for the 3 Sales Tax Acts relating to royalty payments. The subjects of taxation and the various Assessment Acts and Sales Tax Acts are set out in the following table -
| Assessment Acts and Sales Tax Acts | Subjects of Taxation |
|---|---|
| Sales Tax Assessment Act (No. 1) and Sales Tax Act (No. 1) | Goods manufactured in Australia and sold by the manufacturer or treated by the manufacturer as stock for sale by retail or applied to the manufacturer's own use. |
| Sales Tax Assessment Act (No. 2) and Sales Tax Act (No. 2) | Goods manufactured in Australia and sold by a purchaser from the manufacturer. |
| Sales Tax Assessment Act (No. 3) and Sales Tax Act (No. 3) | Goods manufactured in Australia and sold by a person not being either the manufacturer or a purchaser from the manufacturer. |
| Sales Tax Assessment Act (No. 4) and Sales Tax Act (No. 4) | Goods manufactured in Australia and applied to own use by a purchaser who quoted a sales tax certificate number when purchasing the goods. |
| Sales Tax Assessment Act (No. 5) and Sales Tax Act (No. 5) | Imported goods entered for home consumption in Australia. |
| Sales Tax Assessment Act (No. 6) and Sales Tax Act (No. 6) | Goods imported into Australia and sold by the importer or applied to own use by the importer. |
| Sales Tax Assessment Act (No. 7) and Sales Tax Act (No. 7) | Goods imported into Australia and sold by a person other than the importer. |
| Sales Tax Assessment Act (No. 8) and Sales Tax Act (No. 8) | Goods imported into Australia and applied to own use by a purchaser who quoted a sales tax certificate number when purchasing the goods. |
| Sales Tax Assessment Act (No. 9) and Sales Tax Act (No. 9) | Goods in Australia dealt with by lease. |
| Sales Tax Assessment Act (No. 10) and Sales Tax Act (No. 10A), Sales Tax Act (No. 10B) and Sales Tax Act (No. 10C) | Certain royalties payable in respect of goods. |
| Sales Tax Assessment Act (No.11) and Sales Tax Act (No.11A) and Sales Tax Act (No.11B) | Australian manufactured airport shop goods purchased in excess of tax-free limits by passengers or crew arriving in Australia on international flights, sold to persons other than those passengers or crew or applied to own use by the proprietor of an inwards duty free shop |
Another Act, the Sales Tax (Exemptions and Classifications) Act 1935, contains a First Schedule that lists classes of goods that are exempt from tax and specifies circumstances in which particular exemptions apply. Further Schedules list the classes of goods that are taxable at specified rates. Goods not listed in any of the Schedules to that Act are taxable at what is called the "general rate" - currently 20%. Exemptions from tax set out in this Act extend to otherwise taxable goods that are for use by specified organisations or are dealt with in a particular manner.
A further Act, the Sales Tax Procedure Act 1934, provides the machinery for the collection and recovery of sales tax but obviates the necessity to establish under which of the various Assessment Acts a particular transaction falls.
The Taxation Administration Act 1953 contains provisions relating to offences and prosecution of offences against the various taxation laws including the sales tax law.