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High Court's landmark decision means GST inevitable

Publication date: 05 Aug 97 | Source: THE TAX INSTITUTE

The High Court's landmark decision handed down today means that a goods and services tax is now inevitable.

Taxation Institute of Australia President, Mr Richard Gelski said that the High Court's decision means that the States and Territories will no longer be able levy the range of franchise fees and charges leaving them in the position of having to seek the Commonwealth's help to raise much needed revenue.

Unless the Commonwealth comes to the rescue of the States, there is a real danger of the collapse of the Commonwealth as we know it," Mr Gelski said.

The case (Walter Hammond & Associates Pty Ltd v NSW) involved a NSW tobacco wholesaler who was charged with evading $19m in licence fees. The wholesaler challenged the validity of the Business Franchise Licences (Tobacco) Act as imposing licence fees for wholesalers' licences, in breach of section 90 of the Constitution.

It is estimated that the decision affects State revenues of close to $5 billion in franchise taxes and another $2.6 billion in tobacco taxes.

"The States and the Territories will be looking to the Commonwealth to make up this enormous short fall. It is unlikely that it can be made up from existing Commonwealth taxes," Mr Gelski said.

However, Mr Gelski warned that the Commonwealth should not try to introduce retrospective legislation to protect the States, rather the Commonwealth Parliament should be recalled to pass stop gap legislation. This way the rights of all taxpayers may be properly protected.

"Sellers of tobacco, liquor and petrol needed to be careful not to prejudice themselves by selling 'excluding tax' during such period until the Commonwealth passes stop gap legislation. If the legislation is retrospective, vendors could find themselves out of pocket," he said.

"Given the shrinking nature of the Commonwealth's existing indirect tax base, this decision makes a consumption tax for Australia inevitable."

The Taxation Institute called upon the Commonwealth to immediately indicate whether it will agree to the introduction of new taxes to be levied on behalf of the States to enable them to retain an adequate revenue base. Failing this, the Commonwealth must agree to review its existing State funding arrangements to avert an otherwise collapse of the Commonwealth.