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Wednesday, 29 April 1987
Page: 1987

Senator ROBERTSON —My question is directed to the Minister for Finance. The proponents of value added tax-type consumption taxes often argue that such a tax is less subject to evasion and avoidance than personal income tax and that the operation of such a tax allows a better policing of the personal income tax system. Has the Government considered the implications of that in framing its policy on tax avoidance and evasion, and are those claims firmly grounded? In particular, would the average small businessman in Australia, say, a delicatessen proprietor, be made better off by a shift in the Australian tax mix away from personal income tax towards VAT?

Senator WALSH —In response to the last part of the question, there is a circumstance under which a small businessman, such as a delicatessen proprietor, could be better off under a VAT, and that circumstance is if the person in question is into tax evasion. Whether value added taxes are easier to police than personal income tax is a matter of some controversy but, in general, I think the degree to which taxes are effectively policed is a function of the resources which are devoted to policing them as well as of the innate ease or difficulty of administering or evading. In the case of a VAT, it depends, of course, on how tight or onerous the administrative requirements of a VAT are in regard to record keeping by businesses and on the number and powers of VAT inspectors. For example, a small shopkeeper could, under present tax arrangements, take food from the shelves of his shop for his own use without putting the purchases through the till and could claim the full cost of the wholesaler's bill as a deduction from his personal income via business expenses even though he used the purchases for personal use and was thereby evading personal income tax.

If the record keeping requirements of a VAT were strict enough, so strict as to include the fact that that transaction had taken place within the proprietor's shop, and there were thousands of VAT inspectors running around, there is some chance that the personal income tax evaded in that way would be picked up by the VAT inspector. The VAT records would then enable a clamp down to take place on the personal income tax evaded. If the system was not so tightly policed, the shopkeeper who, say, was doing that would be able to evade more tax with a VAT than under personal tax because he would evade not only by way of the wholesaler's bill claimed as a deduction or a business expense, but also by way of the VAT which should have applied to the value added by the retail business. Honest, law abiding small shopkeepers, of course, would not be doing either and would not have to worry, but they would have to face the detailed costs of keeping the VAT records and the costs of complying with the inspections by VAT officers. Small business associations which support the VAT must be very keen on stamping out tax evasion if they want to employ thousands of VAT enforcers or inspectors just to catch up with a handful of businesses which are evading income tax at present in that way and would presumably evade a VAT as well unless it was very tightly policed.

In closing, I think that those people who purport to speak for small business, such as Andrew Hay and Peter Boyle, either are not aware of the implications of what they say or are more interested in pursuing their personal political ambitions than in furthering the interests of the people whom they purport to represent.