Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 12 - Regulation Impact Statement (RIS)
12.1 The Government announced the proposal in Tax Reform: not a new tax, a new tax system: The Howard Governments Plan for a New Tax System on 13 August 1998 (ANTS).
12.2 The Government has decided that, from 1July2000, wine will become subject to a wine equalisation tax (WET) to replace the difference between the current wholesale sales tax (WST) and the proposed goods and services tax (GST). For the purposes of the WET, wine includes fruit and vegetable wine, cider, perry, mead and sake. The WET will be levied at such a rate that the price of a typical four litre cask of wine need only increase by the estimated general price increase associated with indirect tax reform; ie 1.9%. A representative bottle of wine has been estimated to increase in price by about 3% in meeting the price objective on a four litre cask.
12.3 This RIS will deal with:
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- A New Tax System (Indirect Tax Administration) Act 1999;
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- A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999;
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- A New Tax System (Wine Equalisation Tax Imposition - Excise) Act 1999;
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- A New Tax System (Wine Equalisation Tax) Bill 1999;
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- A New Tax System (Wine Equalisation Tax Imposition - Customs) Act 1999; and
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- A New Tax System (Wine Equalisation Tax Imposition - General) Act 1999.
12.4 The purpose of a taxation RIS is to examine implementation options arising from a Government policy decision. Accordingly, the RIS is based on the policy design of the WET, outlined below, and focuses on the best ways to implement the policy within the policy objectives.
12.5 The implementation of the WET will occur against the background of the removal of WST and the implementation of the GST.
Implementation of policy
12.6 The tax is levied at the wholesale level, with tax being paid on the value of the goods at the last wholesale sale. Levying the tax on the wholesale value achieves the relative price impacts on cask and bottled wine outlined in ANTS.
12.7 The WET policy objectives can only be implemented by carrying across the appropriate liability provisions of the WST as they are applicable to wine. This will ensure that the principles underlying the WET are familiar and concepts underlying the legislation well accepted.
12.8 A quotation system is required to ensure that WET is only paid on the last wholesale sale, in line with the policy decision in ANTS. The Australian Business Number registration system will be used as the basis for quotation for the WET.
12.9 Quoting for WET-free purchases has been aligned with the treatment for GST-free supplies. The WST concept of exempt persons being eligible to purchase wine WET-free is not consistent with the GST concept of the GST-free supply of goods. Continuing a separate institution-based quotation system developed under the WST is not required for a wholesale level tax on one product only.
12.10 The WET will be integrated with the registration requirements for the GST. This will be simpler and more consistent for business.
Assessment of impacts (costs and benefits)
12.11 The WET continues taxable value and quoting concepts that businesses are familiar with from the WST. Exports of wine will be WET-free.
12.12 The Government will also be affected by this measure, in particular, the Australian Taxation Office (ATO) and the Australian Customs Service (ACS). However, because the WET will utilise the same administration framework as the GST and the WST it is replacing, the net impact of this measure is expected to be small.
12.13 Consumers will be relatively unaffected by the WET. The price of wine is expected to increase by around the general price impact of tax reform, ie. 1.9%.
Analysis of costs and benefits
12.14 The WET carries across the basic structure of the WST so the practical change for taxpayers is minimal and less complex than under the WST. Some changes have been made to the exemption and quoting arrangements to simplify and improve the administration of the WET and make it consistent with the GST.
12.15 Businesses should incur minimal, if any, additional implementation costs for the WET alone, as current WST systems and accounting will accommodate the WET. Businesses that obtain wine WET-free for GST-free supply, such as hospitals and providers of religious services, will not have a need for WET accounting systems as there will not be a need to remit WET.
12.16 The WET will not impose separate payment arrangements on taxpayers as the GST payment arrangements will be utilised.
12.17 Businesses will be able to claim a credit for the difference between the WET and WST for stock on hand on which WST has been paid. The credit will be offset against their GST liability. Many businesses already undertake an annual stocktake and will not incur any additional cost.
12.18 Businesses should not incur any additional recurrent compliance costs for the WET.
12.19 All WET taxpayers are GST payers and will be included in the field coverage for GST. The WET will cover a relatively small number of substantial entities in terms of turnover etc., and a large number of small manufacturers. The costs that the ATO expects to incur in administering the WET are set out in the following table.
| COST TYPE | YEAR (1999/2000 PRICES) | |||
|---|---|---|---|---|
| 1999-2000 | 2000-2001 | 2001-2002 | 2002-2003 | |
| $000 | $000 | $000 | $000 | |
| Business line resource costs | ||||
| Salary | $700 | $700 | $700 | $700 |
| Administrative funds | $150 | $150 | $150 | $150 |
| Corporate flow-ons | $950 | $950 | $950 | $950 |
| Total administrative costs | $1,800 | $1,800 | $1,800 | $1,800 |
12.20 The revenue from the WET is expected to be similar to collections that would have been made from the WST on wine. The number of taxpayers will be largely unchanged.
12.21 The measure is expected to raise $595 million in 2000-01; $695 million in 2001-02; and $724 million in 2002-03.
12.22 Consultations have been undertaken with the wine industry on factual information required to implement the WET policy as outlined in ANTS.
Conclusion
12.23 The implementation of the WET in accordance with the ANTS policy can only be achieved by a wholesale value tax. The familiar concepts of the WST have been incorporated into the WET to simplify the introduction of the WET to the wine industry. The opportunity has been taken to incorporate quotation for the WET within the GST framework.
12.24 The Treasury and the ATO will monitor this measure, as part of the whole taxation system, on an ongoing basis. In addition, the ATO has consultative arrangements in place to obtain feedback from professional and business associations through other taxpayer forums.