II. Structure and Administration of the Law

Simplification of the Law

27.A6. The sales tax law comprises nine assessment Acts and regulations, nine rating Acts, an exemptions and classifications Act and regulations, and a procedure Act and regulations. When first enacted, the nine assessment Acts each contained schedules of exempt goods, while the nine rating Acts levied a single rate of tax on all taxable goods. In 1935, with the increase in the number of exempt items, the exemptions were removed from the assessment Acts and included in the Sales Tax Exemptions Act. Later, when different rates of tax were applied to particular classes of goods, schedules of such goods were included in the Act and its title was changed to the Sales Tax (Exemptions and Classifications) Act.

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27.A7. The Sales Tax Procedure Act was introduced in 1934 primarily to simplify procedures relating to the classification of goods and recovery of tax under nine assessment Acts. Provisions were subsequently added setting out the circumstances under which refunds of tax are permitted and authorising the remission of tax in cases where the Commissioner alters a ruling he has previously given.

27.A8. It was thought necessary at the time to enact nine separate assessment Acts because of the requirement of the Constitution that a law imposing taxation shall deal with one subject of taxation only. This remains one of the reasons for not amalgamating the present enactments; another is that a restatement of the law using different words would create new problems of interpretation, the meaning of the law as expressed in the nine assessment Acts being now well settled. The Committee is therefore not prepared to recommend any change in the present structure of the law.

27.A9. It has been suggested in submissions that procedures would be simplified and collection costs reduced if sales tax were converted into a manufacturers tax. The Committee does not favour such a step: it would reduce the base of the present tax by omitting the wholesaler's margin of profit, thus conflicting with the principle that a commodity tax should have as broad a base as possible.

Time for Lodgment of Returns

27.A10. Persons liable to pay sales tax are required to lodge a sales tax return within twenty-one days of the close of each month disclosing the sale value of goods sold during that month and the tax payable on them. Tax is also payable within the same twenty-one days, remittance of tax normally accompanying the return. There are similar requirements regarding the lodgment of returns and payment of tax where goods are applied to a taxpayer's own use or, in the case of a manufacturer, are transferred by him to stock for sale by retail. It has been said that these requirements are unfair and that the time for payment of tax should be considerably longer than the twenty-one days now allowed. The contention is that taxpayers should not be required to pay tax before they have received payment for the goods sold. With a levy of this nature, however, it is inevitable that taxpayers will be called upon to pay to least part of the tax before being reimbursed by their customers: this, after all, is a feature of most commodity taxes. Granting wholesalers further time to pay tax will not assist retailers who, in many instances, have to hold tax-paid goods for considerable periods before selling them and obtaining reimbursement of the tax component in the price paid by them to the wholesaler.

27.A11. The suggestion has been put that returns should not have to be lodged until twenty-eight days after the end of the month and that payment of tax should not become due until sixty days later. However, the administrative problems of collection and recovery of tax would be substantial if both these requests were granted. The Committee nevertheless sees some merit in extending the time for lodgment and payment to the last day of the month following the month in which the taxable transactions occur.

Objections and Appeals

27.A12. Sales tax, being a self-assessed tax, does not normally call for the issue of an assessment. However, where a taxpayer is dissatisfied with the amount or value of sale value upon which he is required to pay tax, the Commissioner will issue an assessment enabling the taxpayer to exercise his rights of objection and to refer the Commissioner's decision on objection, if unfavourable, to a Board of Review. Objection may be taken within forty-two days of the first day on which a taxpayer is required to

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pay sales tax. This period differs from the time allowed for lodgment of objections against income tax, estate duty and gift duty assessments. The Committee has recommended in Chapter 22 that the time for lodgment for objections and appeals under all relevant enactments be made uniform.

27.A13. One ground of objection is that the goods have no sale value under the Act: it may be argued, for example, that goods are not ‘goods’ as defined in the Act. However, objection cannot be taken on the ground that the goods should be exempt or taxed at a lower rate because they come within a description of an item in one of the schedules of the Sales Tax (Exemptions and Classifications) Act.

27.A14. Where reference to a Board of Review involves a question of law, the Commissioner or the taxpayer may request the Board to refer the matter to the High Court for its opinion. Either party may appeal against the Board's decision if a question of law is involved.

27.A15. The Acts do not make an assessment conclusive evidence of liability. Therefore, instead of following the appeal procedures, a taxpayer may refuse to pay the tax and raise the point of his objection before a Court when he is sued by the Commissioner for recovery of the tax. This is what a taxpayer must do if he wishes to contest a ruling by the Commissioner bearing on the classification of goods: for example, where the Commissioner denies a taxpayer's claim that the goods are exempt from tax or that they should be taxed at a lower rate of sales tax.

27.A16. It was suggested in several submissions that taxpayers should be given the right of objection and reference to a Board of Review against decisions of the Commissioner concerning the classification of goods. There are practical difficulties, however, in extending the right of reference in such cases.

27.A17. A large staff of taxation officers is employed in classifying goods. The procedure then followed is that, if there has been no previous ruling, a ruling in writing is given to the taxpayer by a Deputy Commissioner. If the taxpayer is dissatisfied with that ruling, the Deputy Commissioner in turn will refer the matter to the Commissioner who will review the Deputy Commissioner's decision and give a final ruling. By this time all the taxpayer's submissions will have received thorough consideration. Apart from this the Commissioner reviews all cases where competitive anomalies are involved. Each Deputy Commissioner is required to submit such cases to him as they arise.

27.A18. Many thousands of rulings are given to taxpayers each year. Only a relatively small number are referred to the Commissioner, who is accepted by most taxpayers as the final arbiter. Occasionally, however, official rulings are disputed before a Court when action has been taken to recover the tax.

27.A19. Because sales tax affects day-to-day transactions, rulings as to the classification of goods must be given expeditiously. If rulings were subject to review by a Board of Review there would inevitably be delays and uncertainty. The failure of a commodity tax law to provide for an administrative review of the classifications of goods by an independent tribunal is not unusual: the same is true, for example, of customs and excise classifications. While it might be fairer if these decisions were referred to a Board of Review, substantial practical difficulties would be involved.

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Freight Charges

27.A20. In contracts for the sale and delivery of goods, the sale value will include any delivery charges. Thus where goods are sold by wholesale to a retailer, tax is payable not only on the price charged for the goods but also on other charges such as freight and insurance incurred up to the time delivery takes place. If a retailer purchases goods ex factory or ex warehouse and makes his own arrangements for the delivery and insurance of the goods, the cost of delivery and insurance will not form part of the taxable sale value.

27.A21. Taxpayers and consumers in districts that are at a considerable distance from the main manufacturing and importing centres claim that they are unfairly treated by the inclusion of freight and other charges in the sale value. The complaint goes deeper than merely the inclusion of delivery charges where goods are purchased, with tax included, from a manufacturer or a wholesale merchant in the capital city. What is also objected to is the increase in sale value where goods are supplied to country retailers by country wholesalers who take delivery charges from the city to their country depots into account when fixing a wholesale selling price for the goods sold in the country.

27.A22. If freight were to be excluded from the sale value of a taxable sale by wholesale only in those cases where the cost of delivery is separately charged, the exclusion could not apply where a country wholesale merchant sells goods ex warehouse in the country. If it were desired to exclude his cost of delivery from the city to his country warehouse, problems of identification and apportionment would arise, since a wholesaler normally buys in bulk and sells in smaller lots. He would be required not only to identify the inward consignment from which the goods were taken, but also to show that the amount to be excluded was an appropriate proportion of the delivery cost of that consignment. Further complications would arise if a wholesale merchant purchased goods from another wholesaler in a country centre or from the country warehouse of a manufacturer who had freighted the goods from a city.

27.A23. If delivery charges were to be excluded from the sale value of goods it appears that under section 51(ii) of the Constitution, which prohibits any discrimination in tax laws between States or parts of States, such exclusion could not be limited to deliveries made in only certain parts of a State: it would have to be applied to all delivery charges made both in the city and the country. In a number of industries, mostly located in cities, manufacturers and wholesalers make deliveries in their own vehicles. Delivery costs are reflected in the price for which they sell their goods and are absorbed in their general overhead costs. It would be extremely difficult for these taxpayers to allocate a cost of delivery to such sales.

27.A24. In the Committee's view equity cannot be achieved in the matter of freight charges without sacrificing simplicity and certainty and unduly increasing compliance costs and the costs of collection of the tax. It therefore does not recommend any change in the present law.

Avoidance of Tax

27.A25. A wholesale sales tax tends to encourage activity at the retail level with a view to minimising tax. For example, if an importer sells goods to retailers, he accounts for tax at the price for which he sells the goods; but if he sells by retail himself, under Sales Tax Assessment Act (No. 5) he accounts for tax on a lower sale value: the value for duty of the goods plus duty plus 20 per cent. By making arrangements for retailers to sell the goods as his agent, he thus pays tax on a sale value substantially lower than the net proceeds (exclusive of tax) he receives from the retailer:

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the equivalent of the amount that would have been the sale value had there been no agency arrangement.

27.A26. A similar advantage can be obtained by a manufacturer or wholesale merchant who makes some sales by wholesale at lower prices than he is prepared to charge when he sells goods to retail merchants generally. If these retailers are made his agents, he will pay tax on notional sale values based on the lower wholesale prices in respect of all sales made through them.

27.A27. While no objection can be taken to agency sales by retailers where the arrangement between the taxpayer and the retailer has a proper commercial basis, arrangements entered into for the sole purpose of avoiding sales tax require scrutiny. Taxpayers who do not enter into agency schemes could be placed at a competitive disadvantage compared with those that do. The Committee takes the view that where sales from stocks in a retail store purport to be agency sales, the law should lay down conditions which will ensure that there is a true commercial relationship of principal and agent. Where those conditions are not complied with, the law should fix a sale value equal to the money proceeds the taxpayer receives for the goods sold (i.e. the tax exclusive retail selling price less costs of selling including the agent's commission).

27.A28. Another arrangement which purports to have the effect of reducing sale value is undertaken by manufacturers who advertise their products nationally and in some cases carry out after-sales service. Under this arrangement a separate company is formed, which invoices charges for advertising, delivery and after-sales service and certain other charges. The manufacturer excludes those costs from the price he charges for the goods when invoicing retailers and thus pays tax on a lower sale value. It is common practice for manufacturers to advertise their own products. If arrangements such as the one just described are effective in reducing sale value, those manufacturers undertaking such an arrangement will gain an advantage over their competitors. There would be problems of excluding the cost of advertising and warranty charges from sale value similar to those described in paragraphs 27.A20–27.A24 in relation to freight, and it would not be administratively practicable to exclude any of these charges from the sale value of a normal sale of goods by wholesale. In view of this, the Committee considers that in cases where charges connected with the sale of goods are invoiced by a separate company the law should specify that the sale value will be the same as it would have been had no arrangement been entered into.