CHAIRMAN -I welcome the officers from the Taxation Office.

SENATOR WATSON -I thank Mr Mitchell for his presence. My first set of questions govern Australian Taxation security provisions. The first question: I refer to the revelations of the Independent Commission Against Corruption on 11 March 1991, where it was revealed that private or confidential information from the Tax Office was sold to his clients by a private inquiry agent. What procedures have been instituted or will be instituted to prevent this happening again?

MR MOBBS -Senator, the gentleman who is dealing with security has not yet arrived.

SENATOR WATSON -I have another related question which I understand Mr Mitchell will be able to answer. Mr Mitchell, are you aware of allegations of links existing between staff in the Australian Taxation Office and persons with known criminal backgrounds? If you are aware of these allegations, what has the Taxation Office done about the matter?

MR MITCHELL -We did become aware of certain allegations some time ago, and they came from one particular branch office as a by-product of some allegations in another particular case where a particular Tax Office had been found guilty of leaking information to people outside the Tax Office. That person was subsequently charged and received a custodial sentence. Following on from that, there were suggestions coming from various sources that perhaps there were links between known criminals and people within the Tax Office. As a result of that, the Commissioner took the view that we needed to treat that matter seriously, and we set up a small but very high powered task force to carry out inquiries in one State, and those inquiries subsequently did look at some matters in other States.

The inquiries looked very closely at particular people within the organisation followed, up every suggestion that had been made and, at the end of those inquiries, we determined that there was a case to answer in relation to two people. However, as to the question you asked about links between known criminals and people in the Tax Office, those extensive inquiries found no evidence to support that assertion or allegation. That does not mean to say that we are not vigilant in this area. We did, as part of that inquiry, identify certain procedural controls that we believed should be strengthened, particularly within the audit group, and those controls have been strengthened and there are procedures and people have been reminded of this particular area.

SENATOR WATSON -That question, I suppose, involved conspiracy and therefore it is hard to prove. Was it because of that issue that they could not be pressed because of the difficulty of actually criminally proving the linkage?

MR MITCHELL -The matters that were looked into related to allegations that particular audits that had been done had been completed after there had been interference by others outside the Tax Office. In other words, the results were fabricated. That means `conspiracy'. In terms of looking at all of the audits, we did find some audits where we believed that the results did not justify or were not supported by the evidence, and all of those cases have been redone. Nevertheless, we were unable to conclude that the particular audits were done or we could find no evidence that there had been any conspiracy to come to a particular result in those audits, bearing in mind the difficulty of proving conspiracy and bearing in mind that the evidence for such an act is very often extremely difficult to find.

But if I may go on, I mentioned in response to your first question that we did identify a couple of people within our organisation who we believe needed to be dealt with, and that has and is continuing to be done. I cannot say too much more than that because there is work still going on. Inquiries are still proceeding, and it is an issue where it is a matter now for the Director of Public Prosecutions to decide the course, given that he has the responsibility for deciding on prosecution matters.

SENATOR WATSON -You have answered my next question, and the high level investigation that obviously did take place is reassuring, Mr Mitchell. So has any person been charged or could they be charged with offences arising from your inquiries, and are they with the Office at the present time-or would you prefer not to answer that because, if they are with you, it might cause a problem.

MR MITCHELL -That really is a matter for the Director of Public Prosecutions and it is up to him to say whether we will proceed. But I think it is fair to say that inquiries are proceeding and it may be that, whilst the conspiracy matter is difficult to deal with, there are other matters that we can, we believe, proceed with quite appropriately.

SENATOR WATSON -Section 264 notices: I understand that the Melbourne office is considering sending section 264 notices to agents within the Melbourne area. Has this occurred? When this was done in 1985, there was a storm of protest at the arbitrary nature of the exercise. In what way will the issue be any different to the last issue; and can we assume the same hail of protest will not occur this time?

MR MITCHELL -The matter of section 264 notices to which you are referring is related very much to the recent inquiry on withholding tax that Mr Martin reported on yesterday. Going back to 1985, when we issued letters in 1985, they were not section 264 notices, as I understand it. Rather, the letters we issued in 1985 said to people, `We are going to make adjustments to your returns and assess certain income', because we did not believe the information had been provided to support their position.

The current exercise is a section 264 notice-it occurs not only in Melbourne; it is occurring more broadly than that-seeking particular information and asking a range of questions about the nature of the financial arrangements that exist to support the particular taxation circumstances purported in the returns. In 1991 we are issuing section 264 notices whereas in 1985, as I recall-I could be corrected-we were not. The essential difference is that in 1985 we were saying that we did not have the information and that therefore we were going to assess. In 1991 we are saying that we need this information in order to make a judgment about the affairs. Some 900 section 264 notices are scheduled to be issued out of the Melbourne office. They may have already been issued. They were going out over a period of some weeks and the responses are being dealt with.

SENATOR MCMULLAN -We seem to be up to speed. I apologise to the Committee for the fact that I was called out at the time you were starting this particular item. You showed remarkable haste in dealing with three sections after a somewhat slower process earlier and this caught us out. To facilitate matters, I will get the officers to introduce themselves and we can then move on to the tax review as a whole.

SENATOR WATSON -Following that line of questioning, is it true that about 50 per cent to 60 per cent-I know that is a very rough percentage but it gives some indication of the extent-of the notices are being sent to trustees or beneficiaries who reside in Israel. Are there any tax reasons why people are using that particular country?

MR MITCHELL -There is no particular tax reason that I am aware of. That is just the way the cases have come out.

SENATOR WATSON -What progress has been made in removing the Commissioner's discretions that are inconsistent with self-assessment? I refer particularly to those discretions leading to the primary determination of taxation. You might recall the debates we had on the fact that certain discretions are inconsistent with the concept of self-assessment. You may be aware of my concern about the legislative base moving rather slowly.

MR KILLALY -You will be aware of the blue book issued by the Commissioner some time ago. That called for submissions on a range of issues. One of those was in relation to discretions. The time for submissions has now closed; it was 28 March. We are now in the process of reviewing those submissions and determining the best approach to take. In the consultation with the professions there was clear support for the move to self-assessment. One of the big issues was the number of discretions and elections in the Income Tax Assessment Act. There are quite a few of them-some hundreds.

SENATOR WATSON -I am really only concerned about those that lead to the primary determination of taxation rather than the other two categories of discretions.

MR KILLALY -The next main step in the process will be the introduction of self -assessment for individuals in respect of 1992-93 income tax returns. A timetable is implicit in that. I cannot be any more precise than that at this stage.

SENATOR WATSON -I have expressed concerns about the ability of taxpayers who lodge other than through registered tax agents to be able to handle self- assessment by that date without a massive education campaign. Is the Tax Office still moving steadily ahead in relation to that date and without exception?

MR KILLALY -The next step will be in relation to tax agent prepared returns. We are not opening it up to returns prepared by taxpayers themselves.

SENATOR WATSON -What is the date for those prepared by registered agents?

MR KILLALY -It will be in respect of the 1992-93 financial year. Those returns will be lodged during 1993-94 and processed in that period.

SENATOR WATSON -What sort of education campaign are you conducting with the registered tax agents? I can perceive a lot of difficulties, particularly with older agents and agents in suburban or remote country areas.

MR KILLALY -You may recall that the whole process was kicked off by a review that was set up under the auspices of the Commissioner's tax liaison group, which includes representatives from all the tax professional bodies. The second stage of the exercise is simply fleshing out, again in consultation with those people, the finer details that will be required to implement the new regime.

SENATOR WATSON -But to some extent the big professional groups have a vested interest. I am concerned about the small unrepresented groups-the small taxpayers. It would not be so bad if we were further into simplification than we are at the present time. But given the uncertainty, and even given the latest changes in superannuation rebates, et cetera, I have some concern about a tax agent's ability, given the new responsibilities that he has, to be able to adequately cope.

MR KILLALY -Obviously the Taxation Office is concerned to ensure that whatever system it puts in place will be effective and that all the relevant parties affected by it will fully understand their obligations. We will take on board your comments and make sure that what we do appropriately educates all the necessary people.

SENATOR WATSON -I am concerned with the progress of a law that will effectively drive perhaps some of the older members, who are very honest members of the profession, out prematurely because of their inability to handle such a complex Act, with this high degree of uncertainty at the moment and within the adequate legislative base. That is the concern I have. That concern does not really come from the members of the tax liaison group who predominantly come from the big accounting firms or the bigger groups who have a very close and adequate working knowledge of taxation.

MR KILLALY -It is fair to say that the level of complexity increases as you get to the higher end of the market. We are very concerned to ensure that the ordinary taxpayer does not get embroiled in a complicated regime.

SENATOR WATSON -On this issue of taxpayers' rights, there still does not appear to be any provision to ensure that, when changes are made to law to occur after the return has been lodged, no liability will be imposed. I do not think that was adequately addressed under that blue book simplification.

MR KILLALY -Perhaps you could give us an example of the sort of thing you are referring to.

SENATOR WATSON -I might make it as a statement for you to take on board because it will probably evolve in the process of rulings and legislative enactments. There is still a concern that there are not any adequate provisions to ensure that, where changes to the law occur after a return has been lodged, no further liability will be imposed. I will move on. I will have a case that follows very similarly along those lines and ask you to follow that through. Could you update the position on what is known as key man insurance split dollar insurance arrangements. I am aware of a forthcoming ruling. What is the estimated cost of lost revenue under these arrangements?

MR KILLALY -We have not precisely quantified it. Our feeling is that it is significant because of the proliferation of that type of product. If you look at the sums insured, they get up into several hundreds of millions of dollars.

SENATOR WATSON -Therefore, where there is a nexus between the interest and the premium, those schemes are obviously in trouble on a tax avoidance issue because of the non-deductibility?

MR KILLALY -The difficulty with those arrangements is that when you break them down into their component parts--

SENATOR WATSON -I know that there are lots of commutations of them.

MR KILLALY -And you analyse the financial implications of them, they are only marketable on the basis of available tax deductions. Without the tax deductions, the overall effect of those arrangements is a commercial loss.

SENATOR WATSON -It just becomes an ordinary policy, does it not?

MR KILLALY -In those circumstances we are concerned that they are tax driven and that the product moves away from what key man insurance was meant to cover .

SENATOR WATSON -In the Budget Papers, for economy reasons, there was the removal of the hardship board. Has that progressed at all?

MR KILLALY -The Government is still considering its position in relation to that.

SENATOR WATSON -I refer to Exposure Draft ruling No. 36, a ruling that has particular application for solicitors' funds and affects the tax file number. This ruling in part actually runs contrary to the legislative requirements passed by the Parliament relating to the tax file number. Is the Tax office aware of this assertion? If it is, is it the intention of the Government to have what I refer to as this sensible ruling incorporated by way of legislative amendment? Without it you get a proliferation of tax file problems levels. The whole purpose of the tax file number is to identify, but the present arrangement does not allow that. ED No. 36 attempts to provide a way out. But in its present proposed form I believe that it does need a legislative base because it runs contrary to the current legislation. It was an unintended consequence because of the peculiarities that apply to solicitors' funds.

MR STORY -There are some changes to the tax file number laws in Taxation Laws Amendment Bill No. 2 that was introduced last night. I have not got the precise details of those here, but I can certainly get them to you, possibly later this morning. They are intended to give the legislative base that you are referring to.

SENATOR WATSON -For ED No. 36?

MR STORY -Yes.

SENATOR WATSON -I refer to an advice given by the Taxation Office to government on amendments that arise as a consequence of your review of the taxation returns. I refer to the case of Gray and others v. the Federal Commissioner of Taxation, 1989 ATC, 4640. What are the principal considerations usually taken into account by the Office in recommending amendments to government, particularly those amendments that will be of some benefit to a taxpayer?

For example, in Gray's case the Commissioner contested the case for the AAT, upon the taxpayer losing the appeal to the full court or the Federal Court where his appeal was dismissed. I acknowledge that the Tax Office did not press for the awarding of costs, so in effect it had the appearance of being a test case.

But there is always a problem for a taxpayer being used in these sorts of circumstances. I remind you that, following the decision in that case which the taxpayer lost, the Government introduced an amendment to Parliament in an 1990 amendment Bill that had the effect of removing the retrospectivity involved in the case. The result was that the capital gains tax provisions could not apply to the disposal of certain assets before 23 May 1986.

I am interested in the sequence of events where a case is prosecuted and then the law changed after it. Did the Commissioner at any time, either before or after the AAT decision, recommend to the Treasurer or his Department that the income tax Act be amended to ensure that there would not be an element of retrospectivity in the application of the capital gains provisions; if so, when was such a recommendation made?

When was the ATO first aware that an amendment would be made which would have the effect of making the amount assessed to the taxpayer Gray no longer possible? You can see the dilemma I am in: the taxpayer is forced along the line and then, after it is all over, the law having been changed, he is left to carry the baby. I would have preferred a legislative enactment to have been made at an earlier date. Could you give me the time frame and the reasons?

SENATOR MCMULLAN -There are two aspects intertwined there: one is general and one is specific.

SENATOR WATSON -The use of resources and costs?

SENATOR MCMULLAN -The general is what the criteria are that are applied in such matters, and then we get the specific case. I think it is important to take both instances on notice and give a considered response. I am not sure how far, in giving that, we will go into the particular advice with regard to a particular situation. I have some initial reservations about that, but we will go as far as we can without breaching any of the normal processes. But certainly with regard to the criteria, the priorities and the processes, we will give you a considered response as quickly as we can.

SENATOR WATSON -As a parliamentarian, I am concerned about the considerable costs incurred by our constituents in prosecuting these cases to those levels by the ATO, even if it is run as a test case, because it does put them at a financial disadvantage. Although the question is to be taken on notice-and please feel free to take any of my questions on notice; I would rather have a full answer later than a quick answer now-if it was known that an amendment would be presented, why was the matter pursued?

SENATOR MCMULLAN -Let us give you a considered view.

SENATOR WATSON -In a similar vein, does the Commissioner ever make a recommendation based on commercial reality? The Commissioner, in recent times, has been calling upon taxpayers to be good citizens. This term `good citizenship' in relation to attitudes towards the taxation system does come through quite often. I refer to the speech of 24 February 1991 to the Institute of Chartered Accountants.

I come back to the original question of commercial practice rather than the strict interpretation of the income tax Act. Would it be fair to say that, where there is a benefit to the taxpayer, there is some tardiness in recommending changes? I cite the Coles Myer finance decision, on the one hand, exhorting good citizenship-in the sense of not sticking to the strict letter of the law-but, on the other hand, exhorting corporate reality or moral responsibility, which the Taxation Commissioner was referring to in the speech . In my view, the Commissioner did not appear to reciprocate with this good citizenship approach, or in terms of what is known as commercial practice, rather than a strict interpretation of the law.

Would the Commissioner consider an approach to government to change the law so as to adopt an appropriate commercial realism in today's world in the case of deductions for discount for bills of exchange; and if he has that in mind, on what basis?

SENATOR MCMULLAN -I accept, the Government accepts and, from my discussion, I am sure the Commissioner accepts that the emphasis we put on voluntary compliance and what you called good citizenship does impose, as a corollary, an obligation on the Taxation Office, the Commissioner and the Government to provide service and be cooperative in order to facilitate and encourage people to act in the way we are exhorting them to behave. So, as a matter of principle, I think your statement about the balance is correct. That is the principle we are trying to apply. I know a little about the matter you are raising, but someone may want to supplement it a little further.

MR KILLALY -The Coles Myer case involved short term discounted bills. Long term discounted bills are, of course, covered by division 16e, and both deductibility and accessibility are calculated on an accruals basis. So the problem is confined to short term discounted bills. The Commissioner, in arguing that case, has to have regard to the provisions of sections 25 and 51. So the central question there is whether the finance company has in fact incurred the expense by 30 June. Where a short term bill straddles two financial years, the Commissioner has always taken the view that the expense is not incurred until the obligation to pay the discount arises. To change that position requires legislation, and that is a matter for the Government.

SENATOR WATSON -I know it requires legislation, but that is what I am pointing out. If the Commissioner is exhorting good citizenship and not going down the line of strict interpretation, we would like to see the amendments. I think that is in keeping with this concept that the Commissioner is extolling at the present time.

SENATOR MCMULLAN -I do not think we can take it any further today.

SENATOR WATSON -In the commercial world, there were a lot of people who were a little bit disappointed; they saw it as something of a backward step, if I may make that as an observation from my reading and discussions. My next question concerns inconsistencies in the Act which often affect only a few taxpayers rather than the broad spectrum of people. These inconsistencies nevertheless often cause hardship or inequalities. Frequently the responses to requests for amendments have been along the line that they have a lower priority or a low priority and therefore do not warrant the use of resources necessary to make the recommendations and amendments. Some proposals have been made that an annual amendment should be presented to Parliament-and I think I have made that proposal myself on one or two occasions- which would incorporate all the very small amendments designed to correct drafting errors, inconsistencies and inequitable situations. The US have adopted this measure. Would the Commissioner or the ATO give a view on the desirability of a similar approach being adopted in Australia?

SENATOR MCMULLAN -That is really a question for the Government rather than the Commissioner. It is a question that I have discussed and, as you know, we do make a proliferation of minor amendments now through the tax laws. Talking about the income tax Act, the amendment Bills that go through each year make- from the views put to me-too many small changes already. Just changing the name of the Bill and calling it a technical corrections Bill does not reduce the amount of drafting and resources that are required to make it, so it is a question that is under discussion and I am not ruling it out. In fact, I hope to have some discussions with some United States people about it in the not too distant future. But those are the factors that are weighing in the balance at the moment. The Government is considering it and I and others have had discussions with the Commissioner and other officers about it, but we have not decided to do it yet for those sorts of reasons.

SENATOR WATSON -My next question is about the new positions called `technical specialists', which I welcome. I preface my question by saying that I understand that the ATO has been given various positions which were to be filled by technical specialists. The stated aim was to retain high quality officers within the Taxation Office; again, we welcome that. However, some concern has been expressed that those positions are now or will be a combination of what I refer to as management technical positions which will place some emphasis on management and therefore dilute or perhaps not assist in the aim of retaining technical or skilled technical officers.

Can the ATO advise: the number of positions to be filled; how many applications have been received for those positions; whether all applicants have been or will be interviewed for those positions; and whether the original objective of the offices being purely technical in nature will be maintained; and what positions if any have already been filled? Can the officers give us an assurance that the officers which are selected for those positions will be selected for their technical excellence rather than for their managerial ability? Would you like to have a look at the question before answering, or have you got the gist of it?

MR MOBBS -I think we would need to look at it for a full answer.

MR DOUGHTY -In taking that question on notice, I think we could allay your concern about these positions being technical. I can make the point that these positions will be purely technical, specialist positions. They will not have line management responsibilities.

SENATOR WATSON -How did the concern get out that they would have that combination?

MR DOUGHTY -I am concerned that that concern got out because all along, our intention was that they would be technical specialist positions and would not have any line management responsibilities.

MR MOBBS -If you could name your source, we will follow it up.

SENATOR WATSON - Do not think all my questions are going to be ones of complaint; perhaps I am starting on this area, but I will move on later. There have been concerns over the years that the Tax Office has been tardy in some cases in considering objections and in making a decision and advising the taxpayer of that decision. The result has been that taxpayers' legal rights have been considerably delayed and that has served to create much uncertainty in the lodging of the following returns which contain similar income or deduction items. The implementation of self-assessment would only serve to accentuate this because if a decision has not been made, the taxpayer will have no choice but to seek further rulings.

The taxpayer does not currently have any legal remedy to force the Commissioner to make a decision upon an objection. Not only does the Commissioner not have a reasonable time limit imposed, but there is simply no time limit. In theory the objection may never be considered because the Commissioner refuses to consider it. While a writ of mandamus may get results, there is no certainty of such, and in any case, the taxpayer is forced into paying substantial legal costs.

Currently, we understand the Office has accepted the three-month limit on giving a decision on a request for rulings under section 169a. Could the Commissioner or the Office consider the voluntary adoption of a time limit of, say, six months in which the Office will undertake to have finalised or start to take substantial action to resolve the particular objection? Can the ATO give any reason why Parliament should not consider legislation which would impose a time limit on the Commissioner for consideration of an objection? This is another taxpayers' rights sort of question. Again, perhaps there is another need for a legislative base.

MR DOUGHTY -We have a combination of two factors there: administrative expedience versus a requirement for legislation to restrict the time in which a response can be given. Presently it is our aim to respond to any request under section 169a and also to give an advance opinion as quickly as possible.

SENATOR WATSON -That is the general case?

MR DOUGHTY -Yes. I could add nothing further in terms of your question as to whether we should be placing any restriction on time. So far as the legislation is concerned, it just appears to be one of the many gaps in the introduction of self-assessment that was not fixed by a legislative base.

SENATOR WATSON -It just appears to be one of those many gaps in the problems of the introduction of self-assessment that was not fixed by a legislation base.

MR DOUGHTY -It would certainly have to be a matter that would have to be considered in terms of introducing full self-assessment.

MR KILLALY -We will take it on board that issue about integrating the handling of requests for advance opinions with the handling of objections to see whether we can bring the two processes together.

SENATOR WATSON -Earlier last year we were presented with a green paper on a tax simplification. Prior to Christmas a blue book was issued that had the intention of plugging a few holes dating back to the commencement of self- assessment. Having looked at this book and having given it some initial praise and enthusiasm-I welcome it, there is no doubt about that-I now remind you, Senator McMullan, that this book covered only part of the McKinsey recommendations and the emphasis was more on the problem arising from self- assessment, rather than a move forward to simplification. I now ask: do you now acknowledge that there is a need for a further instalment or a further statement on simplification in order to honour your earlier commitment about a green paper? With respect, I think you have gone part of the way. What you have done is good. However, I do not think you have addressed simplification per se; you have addressed self-assessment.

SENATOR MCMULLAN -The blue book on self-assessment was not designed to be a proxy green paper; it was, as you have described it, one part of an ongoing process. The Treasurer has made a decision, and I believe a correct decision-I think I said this in the Parliament-that we are not going ahead with one major discussion paper on all the things that might possibly be done about simplification.

SENATOR WATSON -That is why I asked for an instalment.

SENATOR MCMULLAN -Rather, proceed with what might more closely be-if you want to use the green paper-white paper pattern-a series of small, more considered announcements of what the Government is proposing to do in particular areas, as the blue book was. In that statement we indicated that our intention was that the next stage should be more directly related to the taxation affairs of individual taxpayers. In Wollongong recently the Treasurer indicated that the priority was in the area of superannuation, which most people would agree is that which has the greatest potential for complexity in the affairs of individual taxpayers. We are expecting that to be the next major initiative in the simplification area. That will not be the end of it. It is just the next stage and subsequently there will be others.

SENATOR WATSON -If that is to be the case, could you take on board the recent changes to the allowances that I believed were perhaps unnecessarily complicated in terms of a taxpayer not being aware well into the year of where his potential for tax relief could come from and the complicating steps in relation to the $1,600 and subsequently. That was an unfortunate move-a desirable impact to give relief; but the means of giving relief added a new dimension of complexity that I hoped could be addressed in this new revision that you are looking at.

SENATOR MCMULLAN -I shall take that on board.

SENATOR WATSON -I refer to the industry statement and to an article that appeared in the Australian Financial Review on 18 April 1991. I was disturbed at suggestions that were made by the author, Tim Dodd, that government officials are undermining taxation reform. Is it a fact that there are inaccuracies in the booklet from the Australian Taxation Office on the determination rules? If so, could the Committee be provided with a list of the instances that are incorrect and what steps will be taken to offset that? I acknowledge that we do not have legislation. However, is the booklet going to be withdrawn? Are we going to have a new booklet in relation to the pooling and depreciation reforms when the legislation hits the deck?

SENATOR MCMULLAN -I do not think that the booklet is wrong. In the process of consultation some issues have been raised where people think that it might be interpreted in a way that is unclear. Therefore, the Office is going to try to take steps to ensure that the booklet is clarified. That article needs to be read in the light that there are important discussions going on about the manner of application of the depreciation decisions made in the industry statement.

In the process of negotiations sometimes people think that a media story puts a bit of pressure on the people with whom they are negotiating. We acknowledge that right, so long as it is accepted that we understand what is being done. The process of negotiation will continue. I am pretty confident that we will get an agreed outcome which will achieve the Government's objective and will be of significant benefit to the industry.

SENATOR WATSON -Is the report in that article that I referred to, that the Tax Office acknowledged the error at a meeting of the tax liaison group in Canberra, a true reflection of what takes place.

SENATOR MCMULLAN -I was not at the meeting but my advice is that nobody has acknowledged that the booklet is wrong. In so far as some words should be read to give a meaning other than intended, those words will be clarified. As far as I know, nobody has said that this is wrong. The Australian Financial Review article might have given some parts of the discussions more weight. I would not say that the article was wrong because it was written by a very respectable journalist. However, I think it might have given some part of the discussions more weight than they warranted.

SENATOR WATSON -The reaction I got from other independent sources indicated that the profession was somewhat alarmed that the benefits might be eroded. Is that the case?

SENATOR MCMULLAN -It may be in the end that the benefits are not exactly what they were going to be. That is a matter for determination. There will be substantial benefits.

SENATOR SHORT -Senator Watson's questions referred to the article in yesterday 's Australian Financial Review about the effective life of the plant for depreciation and charges which states:

However, the tax office says that the three words ``by the taxpayer'' in the booklet should be omitted.

Is that correct?

SENATOR MCMULLAN -Those are the words that people thought could give misunderstanding.

SENATOR SHORT -Does the Tax Office think this should be omitted and, if so, what are you doing about it?

SENATOR MCMULLAN -I understand there will be an insert to explain that those words should be deleted.

SENATOR SHORT -In the industry statement there was a accompanying statement of the measures in detail which I think used the same words. What steps are being taken, after the event, to correct misinterpretations that people may have made of the industry statement?

SENATOR MCMULLAN -I shall get the officers to explain because I do not know the precise answer. I did not think that the industry statement did, in fact, use those words. I will get others to supplement my answer.

MR KILLALY -The focus of the industry statement was on the effective life of assets. That has had a time-honoured definition in the context of depreciation . It was unfortunate that certain words were used in the booklet that left open the interpretation that some perspective, other than an objective analysis of the life of the asset, ought to determine the amount of deduction. It is that ambiguity that the Office is seeking to remove by having inserts placed in the booklets and omitting the words `by the taxpayer' from any reprints.

SENATOR SHORT -The statement that accompanied the industry statement used the same words, did it not? I have here an extract from the measures in detail- this is page 5.23, and it states:

`Effective life' will be defined as the estimated life determined on an objective basis in the first year in which the item is used by the taxpayer for the production of income over which the asset could be expected to be used for income producing purposes.

SENATOR MCMULLAN -Those words are in a significantly different place in the sentence and that gives them a significant different meaning. I do not think that is just a semantic point; I think that is a point of substance. Although I am not sure I want to pursue it any further here; I am happy to exchange correspondence with you if need be. I think that is the point that needs to be made.

SENATOR WATSON -Special circumstances have always been reasons for justifying a higher than normal rate, and I refer to situations that used to apply, for example, in manufacturing a few years ago whereby if plant was used for a double shift, that would derive the equivalent of a half of the extra shift, which meant one and a half times the rate. I know that no longer applies. Special circumstances always exist, so what is really new about this technical line because the concept really does worry me. Perhaps you might spell it out because it has a mystery about it?

MR KILLALY -You are certainly correct in saying that special circumstances have always factored into the determination of effective life; they still do. If a motor vehicle is used in a mining site where it is subject to excess wear and tear or there are saline solutions that will rust it in a couple of years , that has to be factored in. But what the industry statement is saying is that there will be further benefits that will accrue to industry by virtue of the rationalisation of the rates.

SENATOR WATSON -The rationalisation of the rates is not the issue. The technical life concept has a few people worried, particularly in circumstances where it is `at the time of purchase' or words to that effect. The decision is made at the beginning of the life of the asset. A decision is made to write it off over three or four years, a tax audit comes along in five years and the machine is probably more efficient and working harder than it has ever worked. As far as the person who has bought that machine is concerned, circumstances in the industry have changed. For example, he might not have the same amount of cash or the same rosy expectations about the future but his machine is still going. Is he likely to run into trouble on a tax audit with a machine that is perhaps even more productive in its fifth or sixth year than when he anticipated that it would last three or four years and asked for a technical assessment under the effective life provisions of the industry statement? Do you see the problems it has?

MR KILLALY -There are a couple of points that come out of that. The first one is: if we rule on what we expect the effective life to be, we will stick to that ruling.

SENATOR WATSON -There is no problem with that.

MR KILLALY -The second point is that the judgment does have to be made in the year in which the asset is first used. So it is a prospective judgment and commonsense dictates that nobody can foresee how long the asset will actually last. It is by its nature an estimate, and I cannot really see a situation where a taxpayer would get into difficulty in those circumstances.

SENATOR WATSON -He would not get into a difficulty providing he took a ruling. Are you suggesting that the wise course under these circumstances for technical life is that he should apply for a ruling in all cases?

MR KILLALY -It is a wise course to seek a ruling. What I would say though is where he or she makes a projection on the basis of objective facts and trends in that person's industry that present a reasonable basis for the estimate that they came to, we will not touch it.

SENATOR WATSON -But you suggest that they should get a ruling?

MR KILLALY -If they feel they need that in special circumstances then we are happy to give it.

SENATOR WATSON -Firstly, before the legislation is framed, I can envisage circumstances where the pooling arrangements work to the detriment of a taxpayer where there is a disposal during the year. Secondly, would it not be necessary to trace particular aspects, especially in the event of capital gains implications? Under those circumstances because of the impact of capital gains would not some of the benefits of pooling be lost?

MR KILLALY -Senator, can we take those two questions on notice?

SENATOR WATSON -Yes. Thank you very much.

SENATOR SHORT -I have a couple of questions in this area. You have had the compression from 18 to seven in the number of rate classes. Do you know how many taxpayers currently utilise more than the seven depreciation rate classes that you are compressing to?

MR KILLALY -No, we do not have that information but I would say it would be a substantial number.

SENATOR SHORT -Do you have any estimate of how many of those people will suffer increases on the one hand or decreases on the other hand as a result of the reduction in classes? Do you go up a class?

MR KILLALY -Yes. It always works to the advantage of the taxpayer.

SENATOR SHORT -Do you go to a higher or a lower rate?

MR KILLALY -A higher rate.

SENATOR SHORT -On what basis does the Commissioner currently allow for the immediate write-off of assets under $300 in value?

MR KILLALY -I cannot remember the detail of that, Senator, but we have, I think, issued an instruction which sets out the guidelines in that regard. I could provide a copy of that to the Committee.

SENATOR SHORT -Do you have any idea-you can take it on notice-of how many taxpayers will be better off under the announced changes in this area?

MR KILLALY -Having regard to the types of equipment that are used in industry- as I said before, my guess is that most people would be using more than seven rates at the moment-I would imagine that just about all of them would be better off to some extent or other.

SENATOR SHORT -We do not know how many yet, do we? You do not have an idea of the real impact in terms of the number of taxpayers who will be affected?

MR KILLALY -No, not in the terms that you are looking for.

SENATOR SHORT -How many taxpayers currently depreciate according to effective life provisions?

MR KILLALY -All of them.

SENATOR SHORT -How did you calculate the estimated deduction in tax revenues resulting from the changes?

MR KILLALY -I do not have those details.

SENATOR SHORT -As to how the amount was calculated?

MR KILLALY -I do not have those details offhand.

SENATOR SHORT -The information I have here says that it had been estimated that the changes in depreciation would reduce tax revenues by $100m in 1992-93 and by declining amounts in later years. What is the basis for that calculation, or estimate, or guesstimate?

MR TETLEY -Those figures are based on a survey of taxpayers. After several years there would be a claw-back as assets are written off. We are giving them a write-off of up to $300. I think most taxpayers would benefit from that. The majority of businesses have assets less than the value of $300. At the moment they are written off over the effective life. We would be giving them a 100 per cent write-off now. As we go down the track, if an asset is written off over three years under the proposals they would be given a 100 per cent write-off now. We would then gain over the next two years because there would be no further cost to revenue.

SENATOR SHORT -I would like to think more about that answer. If you would like to look at it to see whether there is anything you can subsequently add you could perhaps take it on notice on that basis.

SENATOR WATSON -My next question concerns Division 11, subdivision A-dividends and interest payments paid to non-residents. I refer to section 128f (4)-it particularly affects banks-and to interest withholding tax. I give you the situation of an Australian bank in business and the exemption from withholding tax. My example is: an Australian bank raises money in terms of US dollars. Those US dollars never move to Australia but they are on account of the Australian bank in the US in what is referred to as a Nostro account. The Australian bank uses this money effectively in Australia against that low in the United States.

I refer to section 128f (4) (b), sub-sections (i) and (ii). I am told that there is a degree of reluctance by the Australian Taxation Office to acknowledge the provisions of (b) (i) to be used by that company, which would include a bank, which is a money lending company, in an Australian business. The Tax Office insists that the application is not by virtue of 128f (4) (b) ( i) but (b) (ii), which puts the banks at a disadvantage.

For the purpose of the question, I mention that the Commissioner shall issue to the company a certificate containing particulars of the loan stating that the loan complies with the sub-section, but otherwise he shall refuse the application. The section is concerned with the conditions and the issue of a certificate. The certificate, I am told-except in very rare, if any, circumstances-is issued in terms of (b) (i). There appears to be a legislative opportunity. Why is that opportunity being denied, particularly to banks?

I can understand that (b) (ii) is used for companies such as the Coles-Myer group, but they are not in the business of lending money. That is the reason for (b) (ii). Why were banks, with their particular borrowing type characteristics, forced into (ii), the Coles-Myer intended situation-or BHP if you like-rather than (b) (i), because the words seem to be quite explicit to cover the operations of banks?

CHAIRMAN -I have a degree of reluctance to have such a detailed question dealt with in Estimates. I thought it would be very appropriate to be put on notice .

SENATOR WATSON -Yes, I cannot expect an answer to that.

MR KILLALY -I can give you a fairly short answer if you want one. The Coles- Myer analogy may not take the debate very far because large company groups, such as Coles-Myer, these days would invariably have their own in-house finance company. The major point to be made about the analysis of subsections 128f (4) (b) (i) and (ii) is that the use of which they speak is the end use of the funds. That is quite clear from the policy statements that were made at the time the section was introduced. With banks, you can come under sub- paragraph (i) in circumstances where you are using the end use of the money that is in the banking business-for example, setting up a new computer system or financing a head office. There are circumstances where a bank can come within that paragraph.

SENATOR WATSON -Would it not normally come within that paragraph though-that is my question-not in all circumstances, but in the normal situation? I would have expected it to come within that provision. It seems to be the exception rather than the rule, and that is what worries me.

MR KILLALY -I think that is an appropriate approach to take because, as I said , the policy is to look at the end use of the funds and to develop Australian industry and the Australian economy. In that context I think you have to look at sub-paragraphs (i) and (ii) of that sub-section as an overall legislative scheme. When you look at them that way, it colours the meaning of the word used in sub-paragraph (i) to suggest a use other than by way of on-lending. That is the point we are making to the banks. We believe that it is the correct way to apply the section.

SENATOR WATSON -But that does not distinguish the banks in any way from the BHP coal situation. That might do a similar thing? Would you like to take it on notice?

MR KILLALY -Sure.

SENATOR WATSON -My next question concerns what is known as the level playing field in relation to in-house advice and external advice such as advice given by a firm of auditors like Price Waterhouse. We have a situation where there is an equivalent level of advice that Price Waterhouse, as an external advising or consulting group, may give to a company and access to that document is somewhat limited, vis-a-vis specialist advice which is given in- house-to the board in relation to particular matters. Is there not, therefore, an inconsistency in terms of access to those documents whereby there is a restriction in terms of access for the Price Waterhouse-type document as an external adviser, vis-a-vis the specialist, who might have even come from the Taxation Office, in providing that same advice in a big organisation? What I am saying is that sometimes the bigger organisations who have the in-house advice are disadvantaged in terms of access as far as the Taxation Office is concerned. So the whole issue is really one of trying to get back to a level playing field. Could you comment?

MR MITCHELL -I will comment. We have considered this question at the request of professional bodies. They have raised it with us on many occasions- certainly in the formulation originally of the access guidelines which we developed to cover access to various documents. It is our view that the relationship between employer and employee, in the case of the in-house accountant as distinct from the professional relationship between the tax adviser and his client, is somewhat different. That has resulted in us forming the view that the access limitations that we have accepted and acknowledged, relating to papers and advice given by external accountants to companies, would not be extended to the advice that is given by internal accountants. It is a matter that is one of judgment. We have considered it very carefully and we do not believe it is a level playing field issue. We have come to that conclusion and we are not going to change our minds.

SENATOR WATSON -So there is no meeting of the waters at all?

MR MITCHELL -In that respect, no.

SENATOR WATSON -I think that is a bit unfortunate. I now turn to the issue of revenue collection. Mr Highfield, in an office minute, which is now some months old, there was a highlighting of the pool of revenue collection compared with estimated budget revenue goals. I think there was a gross figure of about $1.7 billion, but it is the net figure that we should look at-which was a lot less-because I do not want to overemphasise. It was noted that the collection performance against the budget goals was very uneven across your offices in Australia. Given that there are differences in approach from office to office, can you assure the Senate that all taxpayers are being treated with the same degree of fairness in implementing the laws so far as collection is concerned? Could you outline the procedures that are being followed up by the office to collect the shortfall? Has the position improved to the quarter ending March? Can you give us the shortfall in terms of budget to the end of March? In the past you have had a very high degree of accuracy in terms of collections matching your budgets, but there are special circumstances-for example, the depressed economy and industrial action just prior to Christmas- so there was obviously a bit of an overlap. Perhaps that is all you can answer , because the next one would affect Senator McMullan.

MR HIGHFIELD -I take it that the general thrust of that collection is aimed at the ATO's revenue performance against budget for this current year. I will try to answer the specific issues that you raised. At the outset you referred to a press report which was the result of a minute leaked from the Tax Office back in January. I should say that the position, revenue-wise, now as compared with January has changed somewhat for a number of specific reasons. Budget projections for revenue to the end of March compared with actual collections of tax show a deficit of $1.6 billion.

In January this year there was a revision of budget estimates to the extent of $2.9 billion. The major reason for the discrepancy is that in the month of March corporate tax collections exceeded budget forecasts by $1 billion. Collections of superannuation fund taxes also exceeded budget. So in the last month, particularly-the month of May-there have been a number of developments that cause us now to revise the previously advised budget shortfall of $2.9 billion.

I guess, taking a rough estimate at this particular point in time, we would certainly be anticipating a revenue deficit of the order of $1.5 billion to $2 billion.

SENATOR WATSON -To the end of March?

MR HIGHFIELD -No, that is to the end of the year. The major components of that shortfall are in the area of gross PAYE collections and sales tax collections . We are also evidencing some increase in taxation refunds of both PAYE receipts and PPS receipts. In relation to the PAYE receipts, the increase in refunds is linked to an increase in the deductions being claimed by taxpayers, particularly for work-related expenses but also for non-employer sponsored superannuation claims.

So far as the PPS refunds are concerned, we are witnessing an increase in the rate of refund in that area; essentially because in the prior year the standard rate of deduction for PPS was increased from 15c in the dollar to 20c in the dollar.

In terms of the individual performance of branch offices, there is a fair deal of imprecision in our methods of attempting to forecast how much revenue individual offices will collect. The reasons for that are essentially that taxpayers are able to make payments of tax at the office of their wish and for a range of reasons, generally known to the taxpayer only, they tend to change the offices at which they make payments.

SENATOR WATSON -Perhaps we might refer that to differences even across States.

MR HIGHFIELD -Certainly across States. At an individual office level it is hard for us to project revenue collections, particularly against individual heads of revenue. To some extent we tend to rely on the bigger picture of the overall collections by head of revenue. In relation to the Senator's question on fairness in collection, we certainly attempt to ensure conformity and consistency in the application of procedures. I cannot give the Committee a categorical answer that that does actually occur in each and every office in relation to each and every action we undertake, but that is certainly a cornerstone of the way we attempt to enforce the law.

SENATOR WATSON -Perhaps I could clarify that: information given to me indicates that some States are more ready to prosecute at an earlier date than others. That sort of issue worries me a little bit.

MR HIGHFIELD -There certainly may be those inconsistencies, but, as I said, the basic intention is to be consistent across-the-board. The minute to which you referred also made reference to some stepping up of enforcement activity. We had a concerned in relation to PAYE receipts, whether the deficit was due bother to the recession itself and also to an increasing incidence of employers not remitting to the Taxation Office moneys they have deducted from payments made to employees.

SENATOR WATSON -Was it not particularly in Victoria?

MR HIGHFIELD -Yes, particularly so in Victoria. The difficulty for us is differentiating between the impact of the recession itself on the actual level of wages being paid and also trends in non-compliance among employers. It was a decision of the Taxation Office to intensify enforcement activity in the PAYE area against the background of concern for PAYE receipts.

SENATOR WATSON -Thank you for that very good answer. Are there any particular strategies apart from the intensifying enforcement action against PAYE? It is a little worrying that people are suddenly in such financial position that they are not remitting as required their PAYE group tax obligations.

MR HIGHFIELD -There is a range of strategies; enforcement is only one. We certainly are attempting to publicise the results of our activities, and in that way we attempt to encourage voluntary compliance. An example of that is a recent prosecution in Western Australia, which received some prominence in the national press, for the failure of certain directors of a company to remit tax instalment deductions to the Tax Office. Publicity, prosecutions and earlier follow-up of employees are probably the essential ingredients of the actions we take. I should also say in the sales tax area, where there has been a decline due to the recession, we are also attempting to identify whether there is increased non-compliance in that sector as well.

SENATOR WATSON -Rather than just a drop in revenue?

MR HIGHFIELD -That is right.

SENATOR WATSON -Thank you for that. Have you detected any waywardness or lateness in payment so far as the early remitters are concerned? I would not expect that.

MR HIGHFIELD -You mean the bi-monthly remitters?

SENATOR WATSON -People who have to pay twice monthly, yes.

MR HIGHFIELD -In relation to PAYE, no.

SENATOR WATSON -No problems? They are meeting their obligations on time?

MR HIGHFIELD -Our general observation is that the larger employers certainly have a very high level of compliance in relation to the payment of PAYE debts.

SENATOR WATSON -Yes. Still on this tax instalment deduction, as something like 55 per cent of tax collected is from PAYE sources, I understand and ask, given the current state of the industry which may lead to a failure by employers with liquidity problems to remit PAYE deductions, is the Office in the process of depleting manpower resources available in the source deduction area? Can you supply details of the planned reduction in operatives in source deduction audit, and have such plans taken into account the effect of such audit activity? Further, can you supply details on a State-by-State basis of PAYE remittances?

MR MITCHELL -In relation to the primary thrust of the question, which was whether we are reducing the amount of resource devoted to source deduction audit activities, there has been no decision to do that for the coming year. We are in the process of looking at the disposition of all audit resources across the whole of our activities, so that we can make decisions about where best those resources can be devoted. While PAYE, as the Senator rightly pointed out, accounts for some 55 per cent of revenue collections, we find that much of that collection comes from the very large employers, as Mr Highfield earlier mentioned, that appear to be highly voluntarily compliant, so that the majority of the 55 per cent does flow in on time and we do not need to take enforcement action very often in that area. The amount of revenue at risk in the PAYE area is not the 55 per cent; it is only a part of that 55 per cent; I suggest it is only a very small part of that 55 per cent. Nevertheless, we looking at what part is at risk and what other revenue is at risk across the whole spectrum of our clients. Once we do that, we make decisions about where best to devote resources. That process is going on; it goes on as a matter of course. Perhaps it has not been as good as we could have wished it to have been; we are making sure we are in a better position to do it over the coming years. I am not claiming we have got it all right yet, but we are working towards that. Decisions to move resources from one area to another will be made in the light of what comes out of that analysis. At this stage I would have to say beyond any marginal shifts that might occur in the source deduction area, there has been no decision to make any major shifts; any shifts occurring would be at the margin.

SENATOR WATSON -Therefore the planned reduction in operatives and the source deduction did not take place possibly as a consequences of the shortfalls that first showed themselves in the statistics to the end of December?

MR MITCHELL -If you are referring to this current year, there was some reduction in source deduction audit, but it was at the margin and was made in the light of reducing decisions rather than any decisions in relation to PAYE employers per se. It has had only a marginal impact on the amount of work being done on source deduction audit activities.

SENATOR WATSON -Why was there such a large shortfall in terms of the budget in Victoria as far as the PAYE people were concerned? Why were they so remiss in that State, vis-a-vis the other States?

MR HIGHFIELD -We are not claiming that the shortfall is due entirely to increased non-compliance. As I mentioned before, it is due to the recession, increased unemployment, lower wage payments as well as, to some extent, we believe increased non-compliance.

As I said, we cannot differentiate the impact of those particular two factors.

MR MITCHELL -I think it also should be noted that you mentioned, in particular , source deduction audit activities where one of the primary thrusts of that activity is to look at employers who are not deducting PAYE, rather than those who are simply not paying. Part of source deduction audit activity goes to looking at people who are not remitting, but the large part of it goes to looking at people who are failing to obey the law in terms of deducting PAYE from their employees.

SENATOR WATSON -Still on the revenue collection side, I refer to the Auditor- General's report and pose a couple of questions there. In paragraph 22.3.7 the Auditor-General states:

. . . the ATO was currently unable to measure the level of non-compliance by taxpayers with taxation laws. The ANAO is concerned that, as a consequence, significant amounts of `taxation revenue' may be unassessed and therefore uncollected.

What is the ATO proposing to do about this?

MR MITCHELL -In this area, Senator-I cannot put my hand in the particular report-we have been carrying out analysis for some time in relation to the levels of non-compliance. We are doing this by looking at particular industries through a system of what we have called project based audits, in terms of identifying levels of compliance in those industries. We have looked at the proposition of identifying the level of compliance in a total context, that is, how much or what percentage of the tax that should be paid is paid. We have come to the conclusion that the data is simply not available to do that. In fact, much of the data that one would rely on, comes in fact from the Tax Office. We have determined that we will take the approach of looking at particular industries to determine the level of compliance in those industries and then set about addressing whatever causes exist for non-compliance through education, more auditing, issuing rulings, et cetera. As to the Auditor-General's comment, I guess in any taxation system such as ours where it does rely on voluntary compliance, the statement that not all the tax is collected that should be collected will always be true. I think that is one of the reasons why the Taxation Office exists to ensure that high level of voluntary compliance through a variety of activities such as service and enforcement.

SENATOR WATSON -Thank you. Again at 22.3.31 the Auditor-General points out that:

A number of branch offices was not following up group employers who had not submitted an end-of-year reconciliation, duplicate group certificates and unused stationery.

The Auditor-General expresses concern that, as a result:

. . . it was possible that unreturned certificates could be used for fraudulent purposes.

Has action been taken to remedy this criticism from the Auditor-General?

MR HIGHFIELD -I will have to take that question on notice, Senator Watson, to give you a precise answer.

SENATOR WATSON -On 22.3.45, the Auditor-General points out:

Taxation returns require the taxpayer to sign a declaration as to the accuracy of the information submitted on the return.

At 22.3.46, the Auditor-General found there were a number of cases at one branch office where sales tax returns and prescribed payments declarations had not been signed. The Auditor-General states:

. . . considers that taxpayers should be required to certify that they have complied with the legislation.

Would this requirement, that is, the certification as to compliance with tax law, be more onerous on taxpayers? If so, would the ATO's program of tax simplification need to be accelerated to permit such certification?

MR MITCHELL -I think we will have to take that one on notice, Senator.

SENATOR WATSON -Maybe in the light of that criticism of the Auditor-General in paragraph 22.3.46, I am aware that the Australian Taxation Office in terms of electronic lodgment does not require the signature in the Taxation Office, but the signature of the correctness of the return is kept in the office of the tax agent. Does not the Auditor-General therefore raise a point about that emerging practice in 22.3.46? I know it is early days but I am just highlighting and signalling a potential problem that you may have with the Auditor-General in the light of his comments of 22.3.46.

MR HIGHFIELD -Under the current arrangements for ELS, the tax agents are required to lodge with the Tax Office a paper copy of the electronic return that is transmitted to us. That return is required to be signed. Under arrangements we propose to introduce from July this year there will be arrangements whereby agents can participate in what we call interim paperless ELS, in which case they will have to agree to terms of participation, which are currently being devised with the assistance of the Attorney-General's Department. In that particular set of circumstances agents will be required to keep, on their premises for a defined period of time, a signed copy of the return. But they will not be required to send to the Tax Office a paper copy. It is an issue, a major issue, that is being explored as part of ELS.

SENATOR WATSON -I acknowledge that and I think it is a good process, but what I am signalling is, in the light of the Auditor-General's comment, from that paragraph, will that practice run into problems so far as an Auditor-General is concerned?

MR HIGHFIELD -I cannot comment on behalf of the Auditor-General.

MR MITCHELL -I think we would say, in response to that, it is an issue that we would take up with the Auditor-General.

SENATOR WATSON -By some negotiation with him.

MR MITCHELL -But it should be noted that we are dealing with the Attorney- General's Department to ensure that the legal side of the activity is right.

Sitting suspended from 12.48 to 1.45 p.m.

Senator SHORT-I want to ask a couple of questions in addition to those asked this morning in relation to the decisions in the industry statement. On the question of the environmental impact statement decision announced in the industry statement, that tax deductions over the lesser of 10 years or the life of the associated project, what is the situation if the project never actually gets under way?

DR BOXALL -I am not completely familiar with this area. I think it is best to take that question on notice, although I realise it is a relatively simple question.

SENATOR SHORT -Yes, please take that on notice. It is a factual matter and I understand you would not necessarily know the answer, but it is not a complicated question. The second question, which I guess you can handle in the same way if you like, is: will similar provisions apply to any EISs undertaken during the life of the project to those applying to EISs undertaken before the project sets up? Similarly, what about the treatment of EISs that might be involved in any project extensions?

DR BOXALL -I think it is best to take that on notice as well.

SENATOR SHORT -On the industry statement decision on research and development, the 125 per cent tax deduction is to continue after 1985. Do you have any estimates of the amount of investment that could be considered to have been undertaken as a result of the 125 per cent deduction?

MR KILLALY -It is 150.

SENATOR SHORT -The 150. Has the Department, or the Government, made any estimates of what they expect the impact on investment of the 125 per cent will be?

DR BOXALL -Just to be clear on the question, in other words, what is the impact on investment of reducing it from 150 to--

SENATOR SHORT -Of investment in research and development?

DR BOXALL -Of investment in research and development, of reducing it from 150 to 125?

SENATOR SHORT -I guess two things. That would be one, yes. The other one is do you have any assessment-although this is rolled into the first one-of the impact of the 150 per cent provision?

DR BOXALL -Not that I am aware of.

SENATOR SHORT -Could you take both those questions on notice?

DR BOXALL -Certainly.

SENATOR SHORT -Unless there is someone else who might--

DR BOXALL -The tax office will take that on notice.

SENATOR SHORT -I have asked the two questions I wanted to ask there. I now have some questions on the programs, although while you are there in the witness box, I was going to ask a question again on the tax administration side of things so far as the industry statement decision in relation to wholesale sales tax is concerned. What was the saving estimated to 1991-92-the next Budget-by virtue of the decision to postpone the commencement date for the sales tax changes until after the legislation receives royal assent? Have you made any assessment on that? I assume that that decision was taken, that it would be postponed until royal assent, rather than from the date of the industry statement-I assume that was taken for revenue reasons?

DR BOXALL -Is this with respect to the wholesale sales tax exemption of inputs to goods production?

SENATOR SHORT -Yes.

DR BOXALL -In the industry statement it says that in 1991-92 the cost of the measure would be $200m. Is this getting at your question?

SENATOR SHORT -Could be.

DR BOXALL -I am not sure I understand what further information you want.

SENATOR SHORT -What would have been the full year of impact, if you like, of the wholesale sales tax changes on business inputs if it had applied as from the date of the industry statement, and therefore it would have applied for the end of 1990-91, but it would also have applied for the whole of 1991-92? Is the difference between the $200m and the $375m for 1992-93 the estimated measure of the revenue saving as a result of waiting until the date of royal assent? Is it that simple or is it more complicated?

MR KILLALY -I think we need to take that question on notice.

SENATOR SHORT -On what basis was the $200m figure arrived at and, equally, the $375m figure, given that wholesale sales tax receipts exceed $10 billion?

MR TETLEY -It was essentially based on Bureau of Statistics data. I have not got the detail here with me now, but I would like to take that question on notice.

SENATOR SHORT -Because organisations such as the Business Council, I think, claim that something like 30 per cent-I think I am right; I am quoting from memory-of wholesale sales tax collections fall on business imports. I mean, the figures seem extraordinarily low, given what appears to be the scale of the exemption, and I am trying to get at why they seem so low and whether, in that connection, you have any comment on the report that was in the press in the last few days-and I must confess, I cannot remember from whom it was based -claiming that 375 is a gross underestimate and that, instead, the more likely figure involved would exceed $1 billion.

SENATOR MCMULLAN -I think we could get all that response on notice together with the previous advice that Mr Tetley gave.

SENATOR SHORT -Yes. I am happy for all of that, including that last question, to be taken on notice. The decision in the industry statement to bring the luxury car sales tax back to 30 per cent: it was stated that the cost to the revenue in 1990-91 would be $15m and $45m in 1991-92. I presume that is based therefore on estimates of revenue collections prior to that; I presume it would have to be. How much extra revenue did the 50 per cent car tax raise over the original Budget estimates?

MR TETLEY -I do not have an estimate of that. As you know, when the Government introduced the measure to increase from 30 to 50 per cent, the estimate was that it would generate an additional $105m. I do not have an estimate of the actual additional revenue which was raised.

SENATOR SHORT -I am aware of that original estimate of the revenue that it was going to bring in. Was that estimate fulfilled?

SENATOR MCMULLAN -I would say two things about this. One is, we did just debate this in the Senate about a week ago, and I am not sure that we ought be revisiting it here. The other thing is, if we insist upon pursuing it here-to which I am opposed-then it is very difficult to make an all-other-things- being-equal assessment, because all other things are not equal. The sales of luxury cars in every comparable country are falling, including Australia. How you factor that into your equation, nobody knows. So the projections for the future are best estimates which we have debated in the Senate and, I really put to you, probably not appropriate here.

But you cannot go back and assess the impact of the tax in isolation of the impact of the falling demand for car sales quite autonomously, which would have been exacerbated of course by the tax change and the debate about whether the tax change was going to continue. My principle point is, all that discussion was conducted at some length, and quite properly, in the Senate when we debated this very legislation this week.

SENATOR WATSON -You took on notice a question regarding the appropriate level of sales and the level of new sales. You agreed to give that answer to us at a subsequent date.

SENATOR SHORT -I am interested to ask the question in the presence of tax officers because it does obviously affect the budgetary situation. I am interested to know on what basis the revenue reduction calculations-coming back from 30 per cent to 50 per cent-were made when, on my understanding, going from 30 per cent to 50 per cent did not increase revenue but in fact reduced it.

SENATOR WATSON -That is why they have made the decision to not--

SENATOR SHORT -I know, but--

SENATOR MCMULLAN -Senator Short and Senator Watson might want to have a debate between themselves about it, and it might be a lot of fun, but it is not very productive.

SENATOR WATSON -I am just trying to be helpful.

SENATOR MCMULLAN -The fact is that we do not agree with the assertions they are making. But it does not really matter. I am happy to see if there is something I can provide in addition to the things that are already on notice from the debate that we had in the Senate, but I do not see what else we can do.

SENATOR SHORT -I am happy for it to be taken on notice.

SENATOR MCMULLAN -But I am not saying that there will be anything more. Senator Watson already has some questions on notice. That may be all the information there is. We will certainly respond to those questions because I have already given that undertaking. If there is anything further we can provide, we will do so.

SENATOR SHORT -I am sure you can understand my dilemma. My dilemma is that when the rate went up from 30 per cent to 50 per cent, the revenue from the sale of luxury cars fell. You are now reducing the rate back from 50 per cent to 30 per cent, this time estimating a reduction. So actual experience seems to show an increase in the rate. Your Government's estimates or whoever's estimates they are, show also a reduction when you reduce the rate. I am seeking an explanation to that apparent dilemma.

SENATOR MCMULLAN -Let us not have the debate again; that would be the third time.

SENATOR SHORT -That question is on notice.