Mr PROSSER (9:27 PM) —Taxation Laws Amendment Bill (No. 5) 1998 has four main objectives. Firstly, the bill simplifies the current remittance obligations for most Australian business by aligning the remittance dates for medium and small PAYE, PPS and RPS taxpayers from the seventh to the 21st of the month. Secondly, the bill replaces the current late payment penalty arrangements with a consistent and commercially realistic general interest charge on outstanding amounts of tax. These new penalty arrangements incorporate new failure to notify and late reconciliation statement penalties. Thirdly, this bill introduces a system of running balance accounts to account for sales tax, PAYE, PPS and RPS debts for the year ending 30 June 2000. Finally, the bill introduces measures to deal with the abuse of foreign tax credits.

The measures contained within this bill herald important reforms to Australia's taxation system, simplifying the remittance obligations and reducing compliance costs for most Australian businesses. These measures build on the government's commitment to taxation reforms—reforms we were re-elected to implement.

In relation to the alignment of payment dates, under the current arrangements, medium and small remitters are required to pay deductions on a monthly and quarterly basis respectively. Deductions made during a month or quarter are required to be paid no later than the seventh day after the end of that month or quarter.

Under the new arrangements outlined in this bill, the payment dates for most remitters will be aligned with the new quarterly GST and pay-as-you-go payment dates of 21 October, 21 January, 21 April and 21 July. Aligning the payment dates for monthly and quarterly PAYE, PPS and RPS remitters to the 21st of the month will harmonise all taxation pay ment dates for the new tax system due to come into effect on 1 July 2000.

These reforms will substantially reduce compliance costs for small businesses because most small business will only have to remit tax every quarter, rather than every month. These changes have arisen as a result of the recommendations of the Small Business Deregulation Task Force and they are designed to alleviate the paperwork and compliance burden imposed on Australian business. That is something that I had a hand in implementing. I am delighted that many of the recommendations of the task force have been picked up in this legislation. I am also impressed that the member for Wills has given the government credit for picking up those important elements for small business. That is something that Labor failed to do in their 13 years in office.

Talking about interest charges, I can well remember that in the late 1980s and early 1990s, when small businesses ran into terrible problems with their tax obligations, the penalties and interest charges that were imposed on many of them really hit them for six and many never recovered. They did not know where they were. Not only that, they did not know what their liabilities were so they could try to recover from those debts. This legislation will give far greater certainty to those businesses.

The bill replaces the late payment penalty provisions with a tax deductible, general interest charge on outstanding tax debts. This measure realigns the Australian Taxation Office's business system to reflect the account management practices of major financial institutions. An important shortcoming of the current system is that penalty calculations are not well understood by taxpayers. This problem is further compounded by the inconsistent penalty rates and calculations that exist across the different taxes and between classes of taxpayers. These amendments will rationalise, simplify and align late payment penalties with market interest rates, and this will assist taxpayers to better manage their taxation liabilities under various laws.

The current late penalty rates do not reflect market interest rates, and the lack of commer cial reality in the penalty rules prevents the ATO from assisting taxpayers to minimise any escalation of outstanding debt to the Australian tax office. The general interest charge will establish a common single rate of interest for all tax types where a payment is not received by the due date. In so doing, the bill abolishes the complex and punitive culpability elements that apply for the late payment of some taxes. More importantly, the bill allows these debts to be aggregated into one outstanding balance for each of those tax types.

Under the existing system, when a business incurs a penalty, it is difficult to sort out the amount owed if the late payment has occurred across a range of tax areas. It is currently difficult for a business to determine the penalty, the interest charged on the outstanding debt and the rate of interest charged. For example, currently there are about a dozen different rates of interest that apply to penalties and late payments and they range between 16 and 20 per cent.

The changes contained within this bill rectify these problems by ensuring that taxpayers receive regular statements from the ATO to provide a comprehensive statement of their outstanding liability at a particular point in time, showing the details of their outstanding tax debts and penalties. The bill also enables an automatic calculation of the general interest charge on this outstanding liability. This will enable businesses that incur penalties to evaluate their position and manage their debt more effectively. In almost all cases where the general interest charge is imposed, there will be a reduction of between three and 23 percentage points in the existing penalty rates.

In cases where businesses do run into trouble, for whatever reason, the running balance account amendments introduced by this bill apply a consistent general interest charge to any outstanding tax debts. This tax deductible general interest charge will initially be administered through four separate running balance accounts to be established for a taxpayer's sales tax, PAYE, PPS and RPS debts. This is an important step towards the creation of a single running balance account for all tax debts when the new tax system comes into effect on 1 July 2000.

This is a sensible reform because the present taxation laws cover up to 14 different tax areas, each of which can give rise to separate tax debts. These tax areas are currently managed through several different computer systems, and that is not including the calculation of superannuation liabilities. Under the existing system, where a business falls behind in their monthly obligation to pay sales tax and remit PAYE, PPS and RPS deductions over a year, it could involve something like 48 separate primary debts. When those debts are overdue, they are currently recovered as separate debts, each with its own late payment penalty.

Under the running balance account amendments in this bill, those 48 primary debts referred to above will be aggregated within the four running balance accounts and be represented as four separate recoverable debts. These will ultimately be represented as one recoverable debt from 1 July 2000. So if a business runs into trouble, their tax statement will enable them to understand the penalties and late payments involved.

The introduction of a running balance account will also enable simpler tax accounting and collection arrangements that will position the ATO to better assist taxpayers to minimise any escalation of the amounts outstanding. This represents a more streamlined process than individually calculating the general interest charge for each primary component of debt which contributed to the running balance account balance. This bill also introduces a penalty for failing to notify the commissioner of an obligation to remit a source deduction or sales tax and failing to give the commissioner an annual reconciliation statement of source deductions made.

In relation to foreign tax credits, this bill closes a tax loophole that has enabled taxpayers to avoid tax through the acquisition of foreign tax credits through schemes that have been designed with the sole purpose of obtaining a tax benefit.

In conclusion, the changes brought about by this bill will be transparent, commercially based and easy to administer. They will encourage withholders who cannot remit deductions by the due date to notify the commissioner of the existence of liabilities to ensure withholders send in their annual reconciliation statements of deductions. The creation of running balance accounts will streamline Australia's taxation system and the general interest charge will replace the cumbersome late payment penalty arrangements with a simpler `interest on outstanding balance' system. Finally, the tightening of the tax law will combat the abuse currently encountered with foreign tax credits.