How the proposed GST will impact ALIA members - Arthur Andersen report

Status of the debate

The Government released its long awaited Tax Reform Package on Thursday 13 August 1998 and, as widely anticipated, has proposed the introduction of a value-added tax styled GST at 10 percent, effective 1 July 2000. Under the proposal, the GST will replace the current wholesale sales tax system ('WST') and state taxes including financial institutions duty (FID) and debits tax, stamp duties on certain business transactions and bed tax.

At this stage, we have only an announcement and some sketchy details of what could ultimately be a new tax system that will collect close to $35 billion in corporate tax revenue. The Government's published explanation of the tax reform package devoted only 10 pages out of a total of some 200 pages to the detail of GST despite this being the major aspect of the package. The major milestones for the Government and the GST proposals are as follows:

• the election - between now and the election in October 1998 there is likely to be significant lobbying as businesses and industry groups either seek concessions, clarification, specific transitional provisions, etc;
• the appointment of the Tax Consultative Committee - this Committee will not be constituted until after the election and it will then address 'outstanding GST design issues';
• the legislation - assuming the Government survives the election, we would expect the GST legislation to be introduced very quickly (probably March/April 1999) at which point the heaviest lobbying is likely to occur as special interest groups pressure the opposition parties in the Senate;
• passage of the legislation - it is likely that there will be further amendments after the legislation is first introduced to cater for the further concessions negotiated in the above phase;
• pre-July 2000 - between the passage of the legislation and the start date, there will be extensive consultation between business and the Government/ATO and the possibility of further amendments as further difficulties unfold; and
• post-July 2000 - implementation.

What is a GST?

As a general rule, GST will be imposed on 'supplies' made by a registered person. To be registered, a person must carry on a 'taxable activity'. Under GST regimes in operation overseas, 'taxable activity' is a broadly defined term and essentially includes every possible type of business transaction. It is generally accepted that the supply of many library services may constitute a 'taxable activity'.

When a registered business makes a taxable supply, it is required to charge and collect GST. This tax will be remitted to the Australian Tax Office (ATO). The tax remitted by a registered person is known as 'output tax'. Registered persons are able to offset against the output tax, any 'input tax'. This is tax charged on the business inputs purchased or received by the business during the course of its operations and may include GST on items such as stock, plant and equipment, rents, insurance, consultants fees and so on.

Most businesses will be considered to carry on taxable activities. Some taxable activities (such as financial services) will be 'input taxed' under GST while other activities (such as exports, government, education and charitable services, etc.) will be 'GST-free'.

ALIA will be particularly concerned to determine whether library services of government (including local councils) and education institutions (such as schools and universities) will enjoy this GST-free status.

GST-free supplies
Registered persons that make GST-free supplies will not have to charge GST on those goods or services and will be entitled to a refund of all the GST charged in respect of purchases of goods and services that relate to the GST-free supply.

The GST-free supplies proposed in the Government's package include health and medical care, education, government and charitable activities.

Input taxed supplies
While not immediately relevant to ALIA, businesses that conduct activities that are input taxed will not charge GST on those supplies and will not be entitled to claim credits for the GST charged on the various inputs to that activity.

Financial services and residential rents are those supplies intended to be input-taxed.

Activities vs organisations
It is important to note that, unlike the wholesale sales tax regime, certain types of activities, rather than certain types of organisations, are treated differently. Thus, financial services will be 'input taxed' but financial institutions (such as banks) may make taxable supplies of other goods and services. Similarly the typical department store charge card services of a retailer will be input taxed as financial services and will require a treatment different from the GST treatment applied to the retailer's normal taxable retail sales.

It is also important to note that 'taxes and charges levied at all levels of government' will be GST-free, but government organisations as such are included in the GST net if they make 'taxable supplies'. The sales tax exemptions currently enjoyed by government authorities such as public libraries will not be repeated under GST. It is the specific activities of the authority that must be addressed. Importantly for ALIA, the Government announced that the 'non-commercial' activities of government will be outside the scope of the GST.

This issue is considered below in respect of public library services.