WHILE Australia debates whether to change GST laws and politicians scramble under the nearest rock at the very mention of a rate increase or the withdrawal of exemptions, European nations are increasing their VAT rates to garner more revenue to pay off debt. They are also exchanging more tax information between tax authorities to catch tax avoiders.
Undoubtedly, this increased tax compliance activity has arisen from the aftermath of the global financial crisis where collecting taxes is regarded as the prime means of reducing unsustainable budget deficits.
France proposes to change its VAT rates as follows:
■ The standard rate will increase from 19.6 to 20 per cent.
■ The middle rate will be increased from 7 to 10 per cent applicable to certain basic necessities (for example, water, food and services to disabled persons).
■ The reduced rate will decrease from 5.5 to 5 per cent applicable to transport, games, entertainment, certain water supplies, books and the transfer of copyrights by authors and artists. The reduced rate also applies to domestic care services provided to individuals, to work on dwellings and to restaurant services.
France has tiered its VAT rates to allow for certain items to be concessionally taxed. In Australia, goods and services are either taxable or GST-free. Australia has only one rate - 10 per cent. Some GST-free items in Australia are food, education, medical and hospital services, exports and certain transfers of businesses.
In a recent report, some states and territories are more than $1 billion behind in their share of GST collections. This reduction in revenue has been caused by reduced economic activity and purchases being made over the internet. The latter is now being tackled by some countries making Amazon.com collect VAT and remitting that tax to the appropriate country's tax authorities. Those authorities have clearly made a decision about the efficiencies in that approach to stem VAT leakage.
If GST is to be used as a means of bolstering state and territory government revenues, some lessons could be learned from European countries. However, the political quandary is that to increase those revenues, the Commonwealth government must amend its laws, potentially to its political detriment.
■ In last week's Tax Word the capital gain to be included in each person's tax return was listed as $50,000. The correct amount is $12,500 because the property was rented for one-quarter of the period.
Michael Bannon is a tax consulting partner at Duesburys Nexia, Canberra