Second Reading
Senator ROBERT RAY (Victoria--Minister for Defence) (4.00 p.m.)--I table a revised explanatory memorandum relating to the bills and move:
That these bills be now read a second time.
I seek leave to have the second reading speeches incorporated in Hansard.
Leave granted.
The speeches read as follows--The bills will amend the taxation laws in a number of respects to give effect to certain announcements in the 1995-96 budget.
The Income Tax Rates Amendment Bill 1995 will increase the general rate of company tax from 33 per cent to 36 per cent for taxable income of the 1995-96 and subsequent income years.
The increased rate will apply to most companies, including non- resident companies, that are taxable in Australia. The new rate will also apply to public trading trusts, corporate unit trusts and limited partnerships that are taxed as companies. The non- statutory fund income of nonmutual life assurance companies will also be subject to tax at the increased rate.
The change in the rate of tax will not apply to certain classes of companies or incomes that are taxed at special rates of tax. The new tax rate will not apply to the statutory fund income or the superannuation business of life assurance companies or to pooled development fund income. It will also not apply to the trustees of superannuation funds, approved deposit funds or pooled superannuation trusts or to registered organisations.
The concessional tax rates that apply to recognised credit unions for the income years up to and including 1996-97 are also not affected by the rate change.
The change in the company tax rate will affect the operation of the franking accounts of companies. Changes to deal with the franking accounts matters will be provided for in an amendment bill to be introduced later this year.
The change in the company tax rate will provide revenue gains in the order of $320 million in 1995-96, $1,570 million in 1996-97, $940 million in 1997-98 and $1,140 million in 1998-99. Taxation of friendly societies and other registered organisations In the 1995-96 budget the government announced a review of the taxing arrangements that apply to the life insurance business of friendly societies and life assurance companies.
The Government is concerned that the review not interfere with the conduct of life insurance business. Accordingly the trustee rates that applied during the 1994-95 income year to the eligible insurance business of life assurance companies (39 per cent) adl friendly societies and other registered organisations (33 per cent) will be maintained until the 1997-98 year of income while the review is undertaken. The tax rates that apply to the life insurance business of life assurance companies and friendly societies will be aligned as an outcome of the review.
Consequently, amendments in the Taxation Laws Amendment (Budget Measures) bill will freeze the rate of tax imposed on the eligible insurance business of friendly societies and other registered organisations at 33 per cent for the 1995-96 and 1996-97 years of income. The rebate applying to taxable bonuses paid on life insurance policies issued by friendly societies will increase to 3 from I July 1995 as scheduled and will be maintained at that level for the year beginning I July 1996.
The cost to the revenue of the measures is expected to be $11 million in 1995-96, $45 million in 1996-97 and $22 million in 1997- 98. There is expected to be a revenue gain of $4 million in 1998- 99.
Tax-advantaged computer programs
The sales tax law contains a concession for goods containing computer programs on reprogrammable microchips. The concession was introduced in September 1992 through a Senate amendment. In effect, the exemption removed from the taxable value of goods the value of any computer program embodied in a re-programmable microchip. This meant that a tax benefit could be obtained merely by putting computer programs on re-programmable microchips instead of non-re-programmable chips The government strongly opposed the introduction of this measure, reflecting the range of drawbacks with it.
The exemption has allowed some taxpayers to claim large reductions in their sales tax liability, and, overall, it is estimated to he costing the Budget some $150 million per annum. Greater losses are anticipated as manufacturers switch to tax advantaged computer programs.
Apart from the fiscal costs, the exemption has caused a range of other problems, including the misallocation of resources yy manufacturers using the more expensive re-programmable microchips solely to get a tax exemption. There have been major problems for taxpayers and the Australian Taxation Office in assessing the value of tax-advantaged computer programs. These have resulted in some manufacturers gaining unfair competitive advantages and, given the difficulties with valuing foreign sourced computer programs, it is likely that some Australian manufacturers have been disadvantaged.
The Sales Tax Assessment Act 1992 is being amended to remove the concession in respect of computer programs contained on non- permanent microchips. This will arrest the significant loss of sales tax revenue arising from the imprecise nature of the exemption, remove anomalies that result in difficulties for taxpayers and promote equity in the market place. The treatment of computer programs will be restored to what it was before the introduction of the 1992 amendment. There will continue to be a reduction in taxable value for certain programs on microchips in cartridges.
The amendments will take effect from budget night. The gain to revenue from the measures is likely to be $10 million for 1994-95, $150 million for 1995-96, $160 million for 1996-97 $170 million for 1997-98 and $185 million for 1998-99.
The sales tax law provides that refunds of sales tax can only be obtained where conditions in the sales tax law are satisfied. These measures provide a level of certainty for both taxpayers and the Government in the treatment of claims for overpaid tax.
However, common law court challenges are seeking to bypass the specified conditions and extend the refund periods beyond the three year limit in the sales tax law. If successful, these challenges could result in `windfall' gains to taxpayers of millions of dollars in cases where the tax was not borne by the taxpayer.
Measures in these bills will prevent the extension of the refund period and the possibility of windfalls for certain taxpayer. These measures will take effect from budget night. It has not been possible to quantify the financial impact.
The Taxation Laws Amendment (Budget Measures) Bill 1995 also makes changes consequential on the increase in the rate of sales tax applying to non-luxury passenger motor vehicles and on the increase in the company tax rate.
The Taxation Laws Amendment (Budget Measures) Bill amends the definition of provisional tax uplift factor so that the factor is 8 per cent for the 1995-96 year of income and 10 per cent for the later years of income unless the Parliament provides otherwise.
Full details of the amendments in these bills are contained in the Explanatory Memorandum circulated to Honourable Senators.
I commend the bills to the Senate.