| |
Stamp Duty Rewrite
A major AELA long-term objective has been the abolition or rationalisation of the array of state taxes that impacted on equipment financing with little commonality of rate, definition, incidence and nexus, making compliance for nationally-operating financiers and for transactions involving cross-border elements, tortuous and costly. Variously referred to as hire of goods, rental business or mortgage duty, they were also most distorting to the equipment financing decision. At the more obvious level, most State governments had imposed a stamp duty on equipment leasing in the range of 1.5% to 2% compared to minimal duty on hire purchase and lower and quite differently based taxes on chattel mortgages. Whilst governments acknowledged the distortion, progress in adopting AELA representations had been slow because of the perceived financial implications for State budgets. While other factors were also at work, this stamp duty distortion was a major cause of the shift over the period from leasing to the non-lease means of equipment finance, and accordingly there was a detriment to the lease product, to State government revenue and to customers better suited to leasing.
Nonetheless, from the mid-1990s onwards all the jurisdictions moved to ameliorate the rate distortion and pursued consistency of tax nexus and approach as part of the Multi-jurisdictional Rewrite project. In terms of rate distortion, NSW was the first State to implement reform, announcing in its 1996 Budget that Hiring Arrangement Duty would be levied on a broader base from 1 October 1996 and the rate of tax halved to 0.75% and from the same date, the ACT introduced a broadened duty along the NSW lines. Victoria introduced a similar restructuring effective from 1 January 1997. In practice there was minimal disruption to markets and to administrative arrangements, the distortion was eliminated in these jurisdictions and despite a substantial lowering of the rate of duty, a more durable revenue base resulted. This encouraged the other states, in the context of their Rewrite implementation to remove the distortion, Tasmania from 1 July 2001 (then abolished altogether from 1 July 2002), SA from 1.8% to 0.75%, effective 1 October 2003 and WA from 1.8% to 0.75% effective 1 July 2004.
IGA 2005 Review of State Taxation
Coincident with these improvements at the individual state level, AELA was encouraged that under the initial GST proposals State taxes on most financial transactions were to be abolished shortly after the 1 July 2000 GST commencement date. However with the revised GST framework announced in May 1999, the abolition of financial institutions duty was deferred by six months to 1 July 2001, the removal of debits tax put off to 1 July 2005 and the abolition of the range of other State taxes on financial transactions was indefinitely deferred but within the context of the 2005 Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA).
As stand-alone initiatives, NSW abolished debits tax from 1 January 2002, Tasmania abolished duty on equipment leases and hire purchase as from 1 July 2002 and Victoria abolished mortgage duty as from 1 July 2004, the latter reintroducing major distortion into that market, favouring the non-taxed chattel mortgage product over leasing and hire purchase.
In March 2005 AELA made submissions to Commonwealth and State Treasurers in the context of the IGA Review, stressing that the Review presented the opportunity to achieve the significant micro-economic reform that abolition of these duties would represent. Our submissions noted that the case for abolition had in fact been well made by both the Commonwealth and the States. The original GST blueprint listed their drawbacks as being: narrowly based; selectively levied; having inconsistent tax bases and rates; with compliance costs significant, particularly for businesses that operated in more than one jurisdiction; and creating opportunities to avoid taxes and encourage taxpayers to conduct activities in States with lower stamp duties.
AELA urged Governments to recognise that there was a compelling economic case for the abolition of stamp duties on equipment finance, and that the IGA Review was the opportunity to achieve this outcome. Accordingly it is most pleasing to be able to report that all jurisdictions are now well advanced on a program for the abolition of stamp duties on equipment finance; this commenced on 1 January 2007 and was expected to be finalised by June 2009, however the mid-2008 abolition of NSW chattel mortgage duty was recently deferred until 1 July 2012. Abolition of these duties represents a major micro-economic reform, and the States and Commonwealth are to be congratulated on this outcome. AELA will continue to assist members in the transitional stages of these reforms and to assist members’ compliance and systems development processes, has prepared a matrix which summarises on a national basis the timetable and relevant implementation legislation.
Abolition of these duties completes a major undertaking commenced by AELA more than a decade ago, and the results are most gratifying.
|
|
