Senate

Explanatory Memorandum

(Circulated by authority of the T reasurer, the Hon Ralph Willis, MP)

Chapter 5 - Sales tax - tax advantaged computer programs

Overview

5.1 The Bill will amend the Sales Tax Assessment Act 1992 to confine the tax advantaged computer program concession to goods other than microchips except for certain programson microchips in cartridges.

Summary of amendments

Purpose of amendments

5.2 To remove the concessional treatment afforded goods which contain computer programs embodied in non-permanent microchips.

Date of effect

5.3 The amendments will apply to dealings with goods occurring after 7.30 pm. eastern standard time on 9 May 1995. [Subclause 2(1) and item 4 of Schedule 3]

Background to the legislation

5.4 An amendment to allow a reduction in the value of goods on which tax is calculated for goods containing computer programs on non-permanent microchips, was considered by Parliament in September 1992 as part of the debate on the Sales Tax Assessment Bill 1992. The amendment effectively removed the value of any computer program embodied in a reprogrammable microchip from the taxable value of goods. The tax reduction proposed was equal to the amount of tax otherwise payable on the value of the program.

5.5 The amendment became effective on 1 January 1993.

5.6 The concession has caused a number of difficulties for taxpayers. While the concession was intended to encourage technological innovation in Australia, it has instead encouraged wastefulness as manufacturers added non-permanent microchips to their goods just to qualify for the concession. The Government is currently losing significant sales tax revenue as a result of the concession and it is anticipated that, given likely advances in technology, the loss will increase. It has also been found that the concession causes anomalies and facilitates tax avoidance.

Explanation of the amendments

5.7 The reduction in taxable value for goods incorporating computer programs on non permanent microchips will be removed by changing the definition of 'tax-advantaged computer programs' in subsection 14(1) and subsection 14(2) of the Sales Tax Assessment Act 1992 . By omitting the word 'permanent' from each subsection, the new definition will restrict the concession to programs embodied in goods other than microchips except for goods covered by subsection 14(2). This returns the treatment of computer programs for sales tax purposes to how it was before the September 1992 amendments. [Item 2 of Schedule 3]

5.8 The exception in subsection 14(2) will continue to allow concessional treatment for programsmarketed exclusively for entertainment or educational use or a combination of both, that are embodied in microchips and enclosed by cartridges, for use in personal computers or home electronic devices or combinations of both. [Item 2 of Schedule 3]

5.9 The definition of permanent microchip in Section 5 of the Sales Tax Assessment Act 1992 will be omitted because there is no longer a need for a distinction between permanent microchips and non-permanent microchips. [Item 1 of Schedule 3]