One-year deferral of interest withholding tax phase down
The Gillard Government will defer by one year its phase down of interest withholding tax, paid primarily by financial institutions.
The Government announced in the 2010-11 Budget that it would phase down the rate of interest withholding tax (IWT) for financial institutions from 2013-14.
This one-year deferral will mean that:
- The rate of IWT for foreign bank branches which borrow from their overseas head office will fall from 5 per cent to 2.5 per cent in 2014-15, and to zero in 2015-16
- 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.
The one year deferral will save $70 million in 2013-14 and $70 million in 2014-15.
Interest withholding tax is levied when interest payments are made on borrowings from overseas. It is primarily paid by financial institutions borrowing from foreign institutions.
The measure in the 2010-11 Budget to phase down the rate of IWT was one of several measures funded from revenues flowing from the Minerals Resource Rent Tax.
The deferral announced today was being contemplated for announcement in the upcoming Midyear Economic and Fiscal Outlook, among a range of savings measures required because fiscal circumstances have changed due to global economic events.
We remain committed to implementing this measure from 2014-15, unlike the Opposition which do not support this measure.
The Government has already helped the financial sector access cheaper funding with the passage last month of legislation to allow the issuance of covered bonds, as well as the Government's substantial investment in the Residential Mortgage Backed Securities market.
23 November 2011