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Compensation and implementation remain unresolved in GST compromise

Publication date: 31 May 99 | Source: THE TAX INSTITUTE

The Taxation Institute of Australia are pleased that some uncertainty has been removed by the GST compromise between the Howard Government and the Democrats, but disappointed that GST concessional treatment of food will add considerable complexity to the system and impose high compliance costs on small business.

"The Institute has always favoured a very broad based system for a goods and services tax as it ensures simplicity of implementation and minimises compliance costs," said Mr Gordon Cooper, President Taxation Institute of Australia.

"We believe the negotiated compromise will cause headaches for many small and medium retail businesses as they struggle to implement a complex system in such a short period of time," he said.

However, Gordon Cooper said that despite some issues being resolved, little information has been forthcoming from the Government regarding how the legislation would be implemented at the small business level and what new levels of compensation would be offered to those disadvantaged by the introduction of a GST particularly in the compromised form.

"Small businesses must still beware as the devil remains in the detail of the legislation," Mr Cooper said.

"For example, what can small businesses expect from the Government in terms of assistance with implementation costs? How do businesses apply for this assistance and who is eligible?"

"The Government has not provided revised levels of assistance to compensate small business for the cost of implementation of a GST under the new deal. If the Government proceeds with the current levels of compensation, small businesses will clearly be put of pocket because of the additional complexity introduced by the GST free status of some foods."

"In addition, even if a small business sells goods which are not subject to GST, they will still be required to keep sufficient records to prove this fact and so will incur compliance costs. How will they recover these and will prices of GST free goods suffer as a result?"

"Although it appears that some foods are clearly either in or out of the GST net, the comment by the Leader of the Democrats, Senator Meg Lees that there would be flexibility in ministerial discretion to ensure a range of household items were not taxed such as sunscreen and condoms, means that some retailers will have no idea of the GST position of many of their goods until the Government produces a comprehensive listing."

"This will further erode the implementation period available to small business in Australia," Mr Cooper said.

The Taxation Institute is also concerned over the level and direction of compensation for those who are adversely affected by the introduction of a GST.

"How is the Government calculating compensation payments for those groups significantly affected by the GST? If the funding was previously coming from the GST revenue, will there still be sufficient revenue generated to fund these groups given the changes to the original costed proposal?" said Mr Cooper

"In addition, the Institute believes it is naove for the Government to calculate compensation solely on gross income levels. The ability of many groups in the community to manipulate their income and capital has traditionally led compensation schemes based on estimates of gross income to fail," he said.

"If the Government negotiate with the Democrats to use this system, there is no guarantee that compensation will go to the groups who really need it."

"Now that negotiations have progressed, the community needs some real indication of what it faces in terms of implementation and compensation - we are not out of the woods yet," Mr Cooper said.