Cooper, Graeme S; Vann, Richard J --- "A Few Myths About the GST" [2000] UNSWLawJl 35; (2000) 23(2) UNSW Law Journal 252

[*] Professor of Taxation Law, Melbourne University Law School, Consultant, Freehill Hollingdale & Page, Melbourne.

[**] Professor of Law, University of Sydney, Member of Australian Taxation Office GST Rulings Panel, Consultant, Greenwoods & Freehills.

[1] We assume some familiarity with the basic operation of the tax which we have discussed in detail in GS Cooper and RJ Vann, “Implementing the Goods and Services Tax” [1999] SydLawRw 16; (1999) 21 Sydney Law Review 337. The technical basis for many of the statements in this article may also be found there.

[2] This position is taken in the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998, pp 6-7, (“GST is effectively borne by consumers when they acquire anything to consume … Suppliers do not bear the GST because the tax is included in the price of what they supply”) and in the Treasurer’s statement, Australia, Treasury, Tax Reform: Not a New Tax, a New Tax System, August 1998 at 80 (“ANTS”) (“the tax being ultimately paid by the final consumer … sales by one business to another will be effectively tax-free”).

[3] The problem of ignorance is not always confined to small firms. There is, for example, a rumour about a prominent Australian insurance company which sent out supplementary premium notices during March and April 2000 to customers to collect small amounts for the GST on each of the insurance policies it had written covering risks occurring after 1 July 2000.

[4] ACCC, “Price Exploitation and the New Tax System  General Principles, Information and Guidelines on When Prices Contravene Section 75AU of the Trade Practices Act 1974”, July 1999, revised March 2000.

[5] See for example, Minister for Financial Services and Regulation, “Hockey Directs ACCC on GST”, Media Release FSR/003, 15 January 2000.

[6] Senator Kemp, Senate, Hansard, 16 February 2000, p 11875. Professor A Fels, Transcript of interview, The Small Business Show, 20 February 2000; ACCC, “GST Claims Misleading”, Media Release, 15 February 2000.

[7] Trade Practice Act 1974 (Cth), s 75AT.

[8] The internet poses many challenges for the tax system including the GST, see ATO, Tax and the Internet (Second Report), 2000 at Part II, ch 7; Organisation for Economic Development and Co-operation (“OECD”), Committee on Fiscal Affairs, “Electronic Commerce: A Discussion Paper on Taxation Issues,” presented at the Ottawa Ministerial Conference, 10 October 1998, available at <www.oecd.org//daf/fa/e_com/discusse.pdf>.

[9] This point was made by JR Kesselman, “Role of the Tax Mix in Tax Reform” in JG Head (ed), Changing the Tax Mix (1986) at 70–71 during the previous tax reform but is consistently ignored in public debate on the GST.

[10] Taxation Administration Act 1953 (Cth), ss 12-190.

[11] See for example, M Fenton-Jones, “Watch out for these top 10 mistakes” Australian Financial Review, available at <afr.com.au/content/000427/gst/fineprint/gst6.html> (listing among the more common GST mistakes observed in New Zealand, “claiming GST input tax credits on items that do not carry GST such as payroll tax, fringe benefits tax or stamp duty; cash-basis registered businesses claiming GST input tax credits on cheques written which live 'in the top drawer' until funds exist to post them to the creditor; claiming GST input tax credits on the full amount of expenses which are subject to apportionment such as vehicle expenses, home office and entertainment; not holding a correct tax invoice for GST input tax credits claimed; claiming GST input tax credits on invoices from unregistered suppliers; claiming GST input tax credits on hire purchase payments rather than the cost of the underlying asset; claiming GST input tax credits on assets purchased but not paying GST on assets sold; cash-basis registered businesses claiming GST input tax credits on the full purchase value of an asset when only a deposit has been paid, such as real estate, creates problems; accruals-basis businesses claiming GST input tax credits on invoices held at the end of a tax period and again in the following period when the payment is made can come a cropper; the final mistake is paying GST on non-taxable receipts such as tax refunds, GST refunds and personal funds introduced into the business”). These errors all suggest that in practice, taxpayers simply apply a 1/11th fraction to the total amount of cash paid or received, rather than assiduously tracking the GST entry shown on individual documents.

[12] This is also the position in Europe. See Genius Holdings BV v Staatssecretaris van Financien [1989] ECR 4227.

[13] There is another response to this question: the supplier may remit quarterly while the buyer claims its credits monthly.

[14] ANTS, note 2 supra at 72.

[15] DJ Juttner, “International Trade: Implications of VAT” (1997) 1 Tax Specialist 90.

[16] ANTS, note 2 supra at 71.

[17] OECD, Harmful Tax Competition: An Emerging Global Issue, (1998. See also note 8 supra.

[18] Tourism Council of Australia, Submission to Select Committee on a New Tax System, 1999 at section 5, available at <www.tourism.org.au/pr.html>.

[19] Proposal for a Council Directive … on Labour Intensive Industries, Official Journal, No C 102, 13 April 1999, available at <europa.eu.int/eur-lex/en/oj/1999/c_10219990413en.html>.

[20] ANTS, note 2 supra at 80.

[21] See AA Tait, Value Added Tax: Administrative and Policy Issues, IMF (1991) p 11.

[22] See OECD, Value Added Taxes in Central and Eastern European Countries: A Comparative Survey and Evaluation, OECD (1998) ch IV.

[23] See for example, Tait, note 21 supra, chs 3-4; K Messere, Tax Policy in OECD Countries: Choices and Conflicts, IBFD (1993) p 396 ff.

[24] See Tait, note 21 supra, p 93.

[25] See OECD, Consumption Tax Trends, OECD (1995) ch 5.

[26] Australia has however changed the incentives slightly with its reduced input tax credit which has led to a narrower definition of financial supply than in many other countries but makes the apportionment problem worse.

[27] The basic elements of the GST occupy about one quarter or less of the 400 pages of the legislation; the rest is given over to special, but necessary, regimes.