KPMG downplays benefits of financial services GST

Liberal MP Dan Tehan argued for expansion of the GST base in an editorial for the Australian Financial Review on Monday – with financial services singled out as “where we should start”.

“The financial services sector has come a long way since the year 2000, as has the technology used to record and track the financial movements,” he said.

“We are now very close to having the ability to apply the GST to these services and it should be the first thing that is reviewed when we consider broadening the GST.”

But KPMG tax partner Nick Kallinikos played down the merits of applying the GST to financial services on a number of fronts.

First, he said, it ignores the fact that banks, life insurers and superannuation funds are already paying GST though the denial of credits on their ‘inputs’.

Mr Kallinikos said that banks do not pay GST on their deposits or loans – but banks’ inputs such as building rental and computer equipment are liable for GST.

And importantly, financial services companies cannot claim a credit for the GST paid on their inputs, he said.

“If you are a financial services provider to the extent that your inputs relate to making financial supplies, you’re denied the ability to claim a credit,” Mr Kallinikos said.

Secondly, he pointed to the complexity of calculating bank margins and then attempting to apply GST to them.

“The VAT/GST system has been around 50 years, and in those jurisdictions where it’s been around that period of time, no one has found an easy solution,” Mr Kallinikos said.

China recently implemented a VAT, but after two years the authoritarian government has not been able to apply the tax to financial services, despite announcing it intends to do so, he said.

Australian Bankers’ Association chief economist Tony Pearson said a GST on financial services would be an “additional tax paid by consumers – essentially a tax on home loans”.