The federal government will defer by one year the phasing down of an interest withholding tax paid by financial institutions in a deal brokered with the Australian Greens over its mining tax.
The government had announced in its 2010/11 budget that it would phase down the rate of interest withholding tax (IWT) for financial institutions from 2013/14. Instead the one-year deferral will save $70 million in 2013/14 and $70 million in 2014/15.
WHAT IS THE IWT
The IWT is levied when interest payments are made on borrowings from overseas, and is primarily paid by financial institutions borrowing from foreign institutions.
The measure was one of several funded from MRRT revenues.
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The deferral means the rate of IWT for foreign bank branches which borrow from their overseas head office will fall from 5.0 per cent to 2.5 per cent in 2014-15, and to zero in 2015-16.
At the same time, the rate of IWT for other financial institutions which borrow from foreign financial institutions, and financial institutions which borrow from offshore retail deposits, will fall from 10 per cent to 7.5 per cent in 2014-15, and to 5 per cent in 2015-16.
KEY FACTS ABOUT THE IWT
*Interest withholding tax is paid on interest payments on overseas borrowings
*It is mainly paid by financial institutions
*Planned reductions in the tax have been deferred by one year
*The deferral will save the government $70 million in 2013/14 and $70 million in 2014/15
*Phase down resumes from 2014/15
IWT CUTS
*IWT rate for foreign bank branches falls from 5pct to 2.5pct in 2014/5, to nil in 2015/16
*IWT rate for other financial institutions falls from 10pct to 7.5pct in 2014/15 and 5pct in 2015/16
*IWT rate for financial institutions borrowing from offshore retail deposits falls from 10pct to 7.5pct 2014/1, and 5pct in 2015/16.
