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1998-99-2000
THE PARLIAMENT OF THE
COMMONWEALTH OF AUSTRALIA
HOUSE OF
REPRESENTATIVES
CUSTOMS TARIFF AMENDMENT BILL (NO. 1)
2000
EXPLANATORY
MEMORANDUM
(Circulated
by the Authority of the
Minister for Justice and Customs, Senator
the
Honourable Amanda Vanstone)
ISBN: 0642 428255
CUSTOMS TARIFF AMENDMENT BILL (NO. 1)
2000
The purpose of this Bill, which includes two schedules, is to enact
amendments to the Customs Tariff Act 1995.
Schedule 1 implements a
per-stick rate of customs duty of $0.18872 on most cigarettes, lightweight
cigars, bidis and other lightweight tobacco products marketed in stick form.
The date of operation for these amendments is 1 November 1999.
Schedule 2
introduces additional measures to detect and deter fuel substitution by removing
the tariff items which provided concessional rates of duty for non-transport
usage. These tariff items were being misused. The amendments contained in this
Schedule do not impose additional duty liability on fuel being used for declared
purposes. The commencement date for these amendments is 15 November
1999.
Introduction of the “Per Stick measures” on Tobacco and
the definition of tobacco leaf
1. Policy
Objective
Previous tobacco excise arrangements encouraged the
manufacture of low value, low weight cigarettes in large packets. This taxation
advantage has skewed consumption towards higher volume, lightweight cigarettes,
which experts consider more harmful on health grounds. As a result the
government announced in “A New Tax System” (ANTS) in August 1998 the
introduction of a per stick rate of duty explained below. This measure was
incorporated in Excise Tariff Proposal No. 2 (1999) and commenced on 1 November
1999. Complementary legislation for imported tobacco products was implemented
in Customs Tariff Proposal No. 6 (1999).
1. Implementation
options
The ‘per stick’ arrangement was announced as part
of the ANTS package. The per stick rate of duty of $0.18872 will apply to
cigarettes, cigars, bidis and other tobacco marketed in stick form containing
not more than 0.8 grams per stick tobacco content. All other tobacco products
will pay duty at a rate of $235.90 per kilogram of tobacco content. Products
subject to this weight based rate will include roll your own and pipe tobacco,
heavy cigarettes, cigars and other stick form tobacco products containing more
than 0.8 grams per stick tobacco content. These rates are
subject to indexation following release of the CPI, usually in February and
August.
The new excise and customs rates have been formulated
based on health experts’ advice and best practice experiences from other
countries. This new approach will address community health concerns and further
streamline the current administration and collection mechanisms. The ‘per
stick’ rate has been set so that the excise per kilogram of tobacco on a
stick of tobacco will be the same as the excise on a kilogram of loose
tobacco.
1. Assessment of impacts (costs and benefits) of each
implementation option
1.1 Impact group
identification
• Tobacco manufacturers
As the
change will result in an increase in the rate of duty for certain tobacco
products, particularly “lightweight”
cigarettes, usually packed in high volume packs (i.e.
40’s and 50’s). This should result in tobacco manufacturers
adjusting wholesale prices of tobacco products and realigning their product
lines following the removal of the taxation advantage. It is anticipated that
this will decrease consumer demand for cigarettes, particularly with the likely
removal of light weight, high volume cigarette packs from the market.
The changes will involve some minor compliance costs. This will
involve initial costs in adjusting computer programs for the rate changes. On
an ongoing basis, there will be some compliance costs in terms of additional
weighing. It will also be necessary to provide sample details for ATO
monitoring on a six monthly basis, however, this information would generally be
used for internal quality control purposes in any case. Manufacturers will now
be required to supply information regarding manufacturing weights of both
tobacco and non tobacco components on a regular basis.
There will however
also be compliance costs savings as there will no longer be the requirement to
produce six monthly weight reconciliation statements unless the tobacco content
is more than 0.8 grams. It will no longer be necessary to adjust computer
systems every time the wholesale list price of tobacco products change. In
addition weighing and quality testing such as moisture testing will not be
required by the ATO where the stick has less than 0.77 grams tobacco
content.
The introduction of a definition of tobacco is favoured by
tobacco manufacturers and producers as a means to reduce illicit tobacco
production which disadvantages legitimate producers and
manufacturers.
• Tobacco retailers
Tobacco retailers
may also experience a fall in demand for cigarettes particularly
light weight, high volume brands and may also need to
change stock levels of certain brands in response to consumer demand. As the
duty is paid by the tobacco manufacturer, there will not be a change in
compliance costs.
• Individuals
Individuals who smoke
tobacco products will be affected by the change in excise duty depending on
which brands they smoke. However, this is in line with the policy intent of the
change which has been introduced for health reasons.
• The ATO
and Customs
The changes will impact on the
ATO and Customs who will administer it. There are some costs in implementing
the measure which includes imposing quotas as a revenue protection measure and
subsequent monitoring of information provided by manufacturers prior to
implementing the per stick arrangements. However, there will be some savings in
the longer term as calculations of duty will be made simpler due to the
abolition of wholesale list prices rates.
1.1 Identification of costs
and benefits
1.1.1 Costs of Compliance
The tobacco
industry is highly concentrated, with only three major domestic tobacco
manufacturers and importers. This industry utilises a high degree of automation
and computerisation. The initial cost of compliance in changing the tobacco tax
base from volume to per stick, is estimated to be less than $1 million.
The initial compliance costs would primarily result from taxpayers
familiarising themselves with the new legislation and adjusting computer
programs for the rate changes. The tobacco industry has been consulted and has
been aware of the proposed changes for over a year prior to the per stick
arrangement being introduced on 1 November 1999. The per stick arrangements are
also similar to those used for taxing tobacco in most other countries, where the
parent tobacco companies operate.
The recurring compliance costs are
estimated to be negligible. Whilst additional weighing and sampling is
required, this information would generally be compiled by the taxpayer for
internal quality control purposes.
1.1.1 Administration
costs
There are some minor administrative
costs for modification to computer systems for the Australian Taxation Office
and Australian Customs Service in implementing the changes.
However, once the changes are in place, these costs will be
offset by reduced administrative costs due to the removal of the use of
wholesale list prices in determining the rate of excise and clarification of the
law as a result of changing the definition of
tobacco.
1.1.1 Government revenue
The partial year impact
of these changes in 1999-2000 is expected to provide additional revenue of
around $300 million. In subsequent years the full year impact is expected to be
additional revenue of around $440
million.
1.1.1 Economic costs
The
policy is likely to reduce demand for cigarettes overall, and in particular
light weight cigarettes, in favour of other goods and
services. Lower cigarette consumption can be expected to result in lower health
care costs to the community.
1.1 Consultation
The policy of
changing the basis of excise on tobacco was announced in August 1998 in the ANTS
policy document. Therefore the tobacco industry has been aware of the proposed
changes for over a year before the per stick arrangements were introduced on 1
November 1999 and have been consulted.
The tobacco industry have been
consulted in relation to the definition of tobacco as part of the Illicit
Tobacco Reduction Strategy.
Health groups have been advocating a change
in the basis of excise on tobacco to a per stick basis for some time.
This proposal will remove the taxation incentives which have encouraged
consumption of large packets of light weight
cigarettes. These are considered by health experts to cause
more harm by encouraging higher consumption levels.
The partial year impact of Schedule 1 changes in 1999-2000 is expected to
provide around $300 million in combined customs and excise duty. In subsequent
years the full year impact is expected to be additional revenue of around $440
million.
The amendments to the tariff structure for petroleum products
that are contained in Schedule 2 of this Bill do not create an additional tax
liability. However, the revenue at risk, if the customs and excise tariff
changes are not introduced, is estimated to be up to $100 million per
annum.
CUSTOMS TARIFF AMENDMENT BILL (NO. 1) 2000
A Bill for an Act to amend the Customs Tariff Act 1995, and for
related purposes.
Clause 1 - Short Title - Customs Tariff Amendment Act
(No. 1) 2000.
Clause 2 - Commencement
Subclause 1 - Clauses 1,
2 and 3 commence on the day on which this
Act receives the Royal
Assent.
Subclause 2 - Schedule 1 is taken to have commenced on
1
November 1999.
Subclause 3 - Schedule 2 is taken to have commenced on
15 November 1999.
Clause 3 - Schedules
This clause is the
formal enabling provision for the Schedules to the Bill, providing that each Act
specified in the Schedules is amended in accordance with the applicable items of
the Schedules. The clause also provides that the other items of the Schedules
have effect according to their own terms.
Schedule 1 - The amendments in
this Schedule are taken to have effect from
1 November
1999.
. Covers - These amendments were tabled in the House
of
Representatives on 21 October 1999 as Customs
Tariff
Proposal No. 6 (1999).
Previous tobacco tariff arrangements
encouraged the manufacture of low value, low weight cigarettes in large packets.
This taxation advantage skewed consumption towards higher volume, lightweight
cigarettes, which experts consider more harmful on health grounds.
The
new structure replaces the previous complex arrangements which were introduced
following the High Court decision on 5 August 1997 which invalidated state
business franchise fees.
These amendments introduce a per stick rate of
duty of $0.18872 (pre February 2000 Consumer Price Index adjustment) for
cigarettes, cigars, bidis and other tobacco marketed in stick form containing
not more than 0.8 grams per stick tobacco content. All other tobacco products
pay duty at a rate of $235.90 per kilogram (pre February 2000 Consumer Price
Index adjustment) of tobacco content. Products subject to this weight based
rate include roll your own and pipe tobacco, heavy cigarettes, cigars and other
stick form tobacco products containing more than 0.8 grams per stick tobacco
content.
Item 67 in Schedule 4 of the Tariff Act has been created to
allow tobacco classified to subheadings 2401.20.00, 2401.30.00 and 2403.91.00 to
be entered duty free by licensed excise manufacturers when it is to be used for
the further manufacturer of tobacco products.
Item No. 1 in this
Schedule contains changes to the table of paired customs tariff subheadings and
excise items in section 19(1) of the Custom Tariff Act. It allows the customs
rate of duty to be adjusted in line with movements in the excise rate of duty
for similar goods. This amendment contains consequential changes to the tobacco
subheadings and items.
Schedule 2 - The amendments in this Schedule are
taken to have effect from
15 November 1999.
. Covers - These
amendments were notified in Special Commonwealth
Gazette S541
which was published on 11 November 1999
and was tabled in the House
of Representatives on
25 November 1999 as Customs Tariff Proposal No. 8
(1999).
Petroleum duty evasion activities known as “fuel
substitution” occur when petrol or diesel used as a transport fuel is
replaced with product that attracts a lower rate of excise or customs duty.
These activities also lead to unfair competition in the market place.
In
January 1998, the Government introduced a system that required duty-free
petroleum products to carry a chemical marker. The marker system also makes it
illegal to sell these products in circumstances that attract the highest rate of
duty.
These arrangements were initially quite effective. However,
petroleum duty evasion activities again increased during 1999 as some parties
exploited weaknesses in the tariff that allow certain fuel substitution
activities to occur.
These amendments introduce a new tariff structure
that removes the categories of fuel which were being extensively abused, most
notably, those categories relating to duty free gasoline and diesel.
Alternative arrangements are in place to protect those consumers with a
legitimate need to access duty free product, in particular when diesel is used
other than as a fuel.
These amendments will not create a new duty
liability.
Item No. 1 of this Schedule contains consequential changes to
the paired customs tariff subheadings and excise items in section 19(1) of the
Tariff Act. The changes are only to petroleum products
references.