CANBERRA -- The Australian government announced an ambitious tax reform package that, among other things, might hurt foreign companies and investors in proposed changes to international tax arrangements.
The main plan is to introduce a 10% goods and services tax on most items, which is to be offset by increases in government pensions and cuts in income taxes. The GST would be effective July 1, 2000.
But this package, which also includes wide-ranging changes in the way business taxes are levied, is subject to the re-election of the coalition government headed by Prime Minister John Howard.
After the unveiling of the tax package Aug. 13, political analysts were speculating a federal election would be held in mid-October. Based on recent public opinion polls, the government is running equal with the opposition Australian Labor Party; the One Nation party is providing a potential wild-card.
In introducing the tax package, the government stated its commitment to maintaining Australia's attractiveness as an investment location and a financial center -- while ensuring foreign investors pay their fair share of tax on Australian source income.
But the proposed changes could have some adverse effects on some foreign investors.
Under a proposed "entity tax regime," tax would be charged at the company rate -- now 36% -- on dividends paid to foreign investors from tax-preferred income. Those dividends now are charged only dividend withholding tax, generally 15%.
The government also is cracking down on the use of trusts, especially overseas trusts, by Australian taxpayers seeking to avoid paying local tax.
Under the timetable for the changes, the government is promising to consult with the business sector.