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Australian Tax System

Australian Tax System

admin / December 15, 2018

Executive summary

Cigarettes fall among commodities that are classified under the Australian tax system as luxuries. As such, they are charged a levy known as GST (Goods and Services Tax) which normally stands at 10% of the value of the commodity so charged and a further excise tax[1].

The GST system provides a lot of revenue for the Australian government due to the fact that most of the goods normally consumed in the due course of everyday life have to be charged GST.

However, the government has zero-rated basic necessities such as food items, education, childcare and health care. It is notable that not all food items are GST-free and for one to know what is taxable and what is not, he or she must consult a list of products produced by the Australian Tax Office (ATO) that details the classification of goods for tax purposes. Apparently, only registered businesses get a tax credit for GST and consumers are not entitled to a refund.

For non-residents (international persons) they are eligible for a GST refund when they purchase goods in Australia exceeding the value of $300 dollars payable prior to departure and on presentation of current passport and airline tickets.

Background

The GST is a form of sales tax that is levied on transactions involving goods and services in Australia. It is a value added tax (VAT) and not a general sales tax in the sense that all parties in the supply chain get a refund except the end user who is usually the consumer.

Interestingly, the GST was only introduced in Australia on July 1st 2000 during the premiership of John Howard. It replaced the cumbersome sales tax system that levied a ‘wholesale tax’ on a whole horde of goods which would also be taxed under state and territorial governments. The tax therefore brought some form of uniformity across the Australian tax system[2].

Initially, there had been much opposition to the introduction of the GST. The idea for a consumption tax that could be levied across the board was first proposed in 1985 by federal treasurer Paul Keating. However, the proposal was dropped after businesses, welfare groups and the ACTU opposed it due to its association with fringe benefits and capital gains taxes.

Nevertheless, the idea resurfaced in 1991 when the then opposition party Liberal-National Coalition (LNC) used it as a campaign item. The public’s distrust of the proposed GST eventually led to the re-election of Keating as Prime Minister and the surprise loss of what had been termed as the ‘unloseable election’ by the opposition in 1993.

In 1996, John Howard led the LNC to a major victory in the elections after making a pledge to ‘never’ introduce the GST. However, in 1998, he backtracked on the promise and instead proposed that the GST be introduced to replace the wholesale sales tax system. In the elections that year, the LNC lost to Labour by a narrow 4.61 % but won the majority of seats in the lower house.

Howard felt that the win indicated that the public was now comfortable with the GST and thus he turned to the minority parties such as the Democrats to whip up support for its introduction since Labour could not accept the GST and the party lacked a senate majority[3].

The proposal for the introduction of the GST was marketed along with the promise that all revenues raised through the GST would eventually be distributed across Australian states and territories.

Additionally, there was the promise that state and territorial taxes levied on consumption would be removed gradually and replaced with GST through the Commonwealth Grants Commission. However, the Democrats were opposed to the package unless it included exemptions on food, offshore tourism packages and books.

After much back and forth, a deal was struck with the Democrats which saw the introduction of these exemptions which included; 8% refund on textbooks for school use, purchases of library books, greater powers extended to the Australian Competition and Consumer Commission (ACCC) and increased welfare payouts.

The agreement between the parties led to the passage of the legislation dubbed A New Tax System (Goods and Services Tax) Act 1999 on June 28th 1999. The Act was assented to on July 8th 1999 and it acquired full operation on July 1st 2000.

List of Objectives

This research paper shall look into the following;

Does the GST system provide exemptions for international persons (non-residents)?
What is the impact of double taxation agreements on the GST application?
Do international persons qualify for tax refunds for cigarette purchases?

Research methodology

This research paper mostly relies on secondary data for information. Much of the information used here was acquired from publications by the Australian Tax Office (ATO), tax specialists and other experts on matters concerning the Australian tax system. Most of the material is in the form of online journal articles, publications, magazines, newspapers and tax seminar speeches.

Results/Findings

As earlier stated, the subject of international persons being susceptible to the GST was an issue of consideration in the passing of the A New Tax System (Goods and Services Tax) Act of 1999.

Prior to the introduction of the GST, international persons, who for the purposes of this research refer to non-residents of Australia living temporarily in Australia, were allowed to purchased goods from ‘duty free’ shops as long as they had a current passport and showed evidence that they intended to leave soonest i.e. by presenting airline tickets. The system allowed such purchase on the premise that such goods would be sealed until the person had passed the customs area.

With the introduction of the GST, much seems to have changed when it comes to the handling of international persons. Since tourism is a major foreign exchange earner, the tax regime has had to be lax on the taxation of international persons especially on consumables. Unlike in the previous sales tax system, the GST system allows the tourist or international person to purchase goods “GST free” a month before departure.

The exemption from GST is allowed where the purchase made is for goods worth more than $300 Australian dollars and that the goods have to be carried as hand luggage and presented when making the refund claim at a Tourist Refund Scheme (TRS) counter during the departure.

However, the construction of what makes up an international person for taxation persons is difficult. The GST system has often been criticized for being unclear and difficult to understand[4].

In most cases, the term non-resident is preferred as defined for income tax purposes. Where the international person in question comes into the country through any other visa except a travel visa, he or she is treated as a resident when it comes to taxation save for a few modifications.

This would mean that GST would be levied on the person as long as he or she is keen to stay in Australia for more than six months. Even where the person intends to leave sooner, the only GST extension available is for one month and it only applies for hand luggage goods worth over $300 dollars[5].

Additionally, double tax agreements entered into between Australia and other countries seem to be only focused on income tax and customs duty. The implication is that international persons should pay for goods consumed in Australia irrespective of their citizenship or duration of stay.

Consequently, most international persons do not receive a tax refund for purchase of goods levied GST. Ideally, the purpose of taxation is to collect revenue for offering services to Australians. Since international persons would most likely not benefit from these services due to their short stay, it is reasonable that they receive a tax refund for goods purchased that have been charged GST.

Cigarettes fall within the bracket of goods that have to be charged GST. In addition, they are also charged a further excise tax. This would mean that international persons who purchase cigarettes from “non duty-free” shops have paid GST.

Since it is not logical that they would purchase cigarettes worth $300 dollars or even expect that they would produce evidence of cigarettes smoked, it is apparent that international persons do not receive any tax return for cigarettes purchased.

In addition, cigarettes are not a necessity and they have harmful effects on the environment and so it’s my opinion that the government should not make tax refunds for cigarettes purchased by international persons.

Conclusion

It is quite apparent that international persons enjoy certain tax benefits in the name of tourism. However, where they get into the country through any other visa other than a travel visa, the taxation system treats them the same way as ordinary residents save for a few modifications.

While it would be prudent to extend some of these favours to these persons for tourism purposes, there are no benefits that will accrue to the country when cigarettes are allowed to be GST-free to non-citizens. Additionally, there are no tax exemptions available for goods that are charged excise tax.

Bibliography

Australian Tax History. Australian Tax Office. Last modified 3 August, 2009. http://www.ato.gov.au/corporate/content.asp?doc=/content/tax_history.htm

Gittins, Ross. “A ‘light on the hill’ for our future tax reformers”. The Age. Last modified 15 June, 2009. http://business.theage.com.au/business/a-light-on-the-hill-for-our-future-tax-reformers-20090614-c7dt.html

Goods and Services Tax (GST) – 7.1.4 – Risks”. Queensland University of Technology. Accessed 3 May, 2011.

James, S., Murphy, K. & Reinhart, M. “Taxpayers beliefs and views: Two new surveys.” Australian Tax Forum 20(2) 2005: 157-188.

Labor says GST has king hit economy.” ABC 7.30 Report. Last modified 20 May, 2006. http://www.abc.net.au/7.30/stories/s256437.htm

“Australian Tax History,” Australian Tax Office, Last modified 3 August, 2009, http://www.ato.gov.au/corporate/content.asp?doc=/content/tax_history.htm.
Ross Gittins, “A ‘light on the hill’ for our future tax reformers”, The Age, Last modified 15 June, 2009, http://business.theage.com.au/business/a-light-on-the-hill-for-our-future-tax-reformers-20090614-c7dt.html.
“Labor says GST has king hit economy,” ABC 7.30 Report, Last modified 20 May, 2006, http://www.abc.net.au/7.30/stories/s256437.htm.
“Goods and Services Tax (GST) – 7.1.4 – Risks”, Queensland University of Technology, Accessed 3 May, 2011,
James, S., Murphy, K. & Reinhart, M, “Taxpayers beliefs and views: Two new surveys”, Australian Tax Forum 20(2) 2005: 157-188.

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