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This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details
Excise Tariff Amendment Bill (No. 1) 2000
Date Introduced: 17 February 2000
House: House of Representatives
Commencement: The amendments relating to tobacco excise are taken to have commenced on 1 November 1999. The amendments relating to petroleum excise are taken to have commenced on 15 November 1999. The Bill itself commences on Royal Assent.
The main purposes of the Bill are to amend the Excise Tariff Act 1921 so as to:
Changes to tobacco excise tariffs
The Bill is intended to ratify Excise tariff proposal No. 2 of 1999(1) made on 20 October and tabled in Parliament on 21 October 1999.(2)
The Federal Government has imposed an excise tax on tobacco products since 1901.(3) Until 1 November 1999, excise duty was levied principally(4) according to the weight of the manufactured tobacco product: in the case of cigarettes, on the total weight of the cigarette.
The weight-based excise system was examined by the 1995 Senate Community Affairs Committee inquiry The Tobacco Industry and the costs of tobacco related illness.(5) The inquiry heard evidence that the weight-based excise system enabled manufacturers to minimise costs by reducing the weight of each cigarette and packaging more cigarettes in larger packs. Submissions by a number of health groups argued that these types of packs encouraged smokers to smoke more cigarettes and were comparatively more attractive to price sensitive smokers including young people and people from lower socio-economic backgrounds.(6) On the other hand, the Department of Health Services and Health apparently advised that 'there was no basis' for supporting a change to a per stick regime from a health perspective and that any such change would involve 'considerable disruption' to the tobacco industry.(7)
Given the conflicting evidence, the Committee recommended that the National Health and Medical Research Council be tasked to review the weight-based system for calculating excise. This recommendation was accepted in the Government's 1997 response to the Committee's report.(8) This process was however overtaken by the review of the tax system announced by the Government in 1998.
In their 1998 submission to the Tax Consultative Task Force, peak health and medical groups recommended that
the government announce a shift to a per stick system for excise effective no later than July 2000…and an increase in tobacco taxes of 5% per annum for at least the next decade, commencing with a 15% increase in 1998 with consideration given to establishing a one cent per stick levy on cigarettes to fund a comprehensive tobacco control program.(9)
The recommendation for a shift to a per stick regime was incorporated into the A New Tax System (ANTS) package announced in August 1998. In the ANTS package, the Government stated that it had
decided not to [increase the tobacco taxes by 15%] but has determined that [changes to excise] will be introduced in such a way that no cigarette brand will fall in price.
Final details on the implementation of the revised excise arrangements were released in February 1999.(10) Under these arrangements, the implementation of the per stick regime was postponed from July to November 1999 to 'enable tobacco manufacturers sufficient time to implement the required changes.'(11) The deferral was calculated to cost $140 million in lost revenue.(12) Annual revenue resulting from the change to the per stick regime is expected to raise $440 million per year.(13)
Under the revised arrangements, a rate of 18.872 cents per stick applies to all cigarettes with a tobacco content up to and including 0.8 grams per cigarette. An excise of $235.90 per kilogram of tobacco applies to all other tobacco products. The Government has projected that the price of premium brand cigarettes would 'not fall' but that 'high volume, low weight cigarettes [would] rise in price'.(14) Recent statements by industry indicate that cigarettes are likely to rise across the board by an additional 8-10% with the introduction of the GST.(15)
The Explanatory Memorandum estimates initial compliance costs for cigarette manufacturers and importers to be less than $1 million, with negligible on-going costs.(16) It also notes(17) that retailers may need to change stock levels in response to a possible fall in demand for lightweight cigarettes. (18)
The Bill also proposes to insert a definition of tobacco in the Excise Tariff Act 1921. Tobacco is a proclaimed material for the purposes of the Excise Act 1901 and producers must be registered and manufacturers must be licensed with fines of $5,000 for contravention. The purpose of including the definition of tobacco is to clarify when tobacco leaf ceases to be proclaimed material under the Excise Act 1901 and becomes an excisable material under the Excise Tariff Act 1921. According to the Explanatory Memorandum, this is 'to assist in addressing the avoidance of excise through the illicit manufacture of tobacco'(19) but no details are given. (if any)
Changes to petroleum excise tariffs
The Bill is intended to ratify Excise tariff proposal No. 3 of 1999(20) made on 11 November and tabled in Parliament on 24 November.(21)
Historically, excise on petroleum products has been levied at differential rates depending upon the intended end use of the product. Fuels intended for on-road use, such as diesel fuel and unleaded petrol have attracted a relatively higher tariff. Tariffs on fuels sold for non-transport uses, such as heating oils and kerosene, have been levied at a lower rate, and other products sold for non-fuel use, such as solvents, have not attracted any excise duty.
The differential tariff rates have been exploited to avoid excise duty on transport fuels through the substitution or unauthorised blending of lower excise petroleum products. Besides reducing Government revenue, the practice of blending or substituting fuels for on-road use is potentially dangerous and can cause damage to vehicle engines.
In 1993 Parliament passed amendments to the Excise Act 1901 and the Excise Tariff Act 1921 to address the avoidance issue.(22) These reforms required all premises, including refineries, service stations and other businesses that blend petroleum and oil products, to be licensed, and to pay duty on the blended substances at either the diesel or leaded petrol rate.
Further legislative changes, which were brought into effect in January 1998,(23) enabled a chemical tracer (a marker dye or a colourless marker) to be added to fuels which attracted concessional rate of excise duty. The purpose was to make it easier for the Australian Customs Service to detect when these products are blended with, or substituted for, excisable fuel.
In June 1998, the Government described these measures as 'very successful…[resulting in increased revenue of] around $10 million a month'.(24) In relation to enforcement, the 1998-99 Customs annual report was a little more guarded, noting that
prosecution action [under the legislation] was commenced against three distributors. These will be test cases of the new legislation, as establishing proof of offences under the Fuel (Penalty Surcharges) Amendment Act 1997 has proven to be more difficult than expected. At 30 June, Customs had 22 other matters under investigation with a view to prosecution.(25)
From July 1999, responsibility for excise functions, including those relating to fuel substitution matters, was transferred to the Australian Tax Office.
The changes proposed in the current Bill further refine the tariff regime, chiefly by:
Item 1 inserts a definition of tobacco into the Schedule of the Excise Tariff Act 1921.
Items 2-4 amend items 6-8 of the Schedule of the Excise Tariff Act 1921. The amendments substitute a per stick excise for various stick form tobacco products (including cigarettes and cigars) where the product contains not more than 0.8 grams of tobacco per stick. Excise on other forms, including sticks of more than 0.8 grams tobacco, is levied at $235.90 per kilogram.
Item 1 substitutes a revised range of definitions and excise classes to item 11 of the Schedule of the Excise Tariff Act 1921 to combat fuel substitution as discussed in the Background to this Digest.
Changes to petroleum excise tariffs
Industry representatives such as the Australian Institute of Petroleum have been involved in discussions with the Government regarding the Bill. It is understood that they support the changes proposed by the Bill as far as they go. However, it is unlikely the Bill will assist in combating the recently reported incidents of operators unlawfully increasing the percentage of toluene and xylene in petrol sold to motorists through a number of service stations in Sydney.(26) These substances are not currently subject to excise and this situation will not change under the Bill. While excessive amounts of these substances may breach the relevant Australian Standard, the standard is only voluntary.(27)
While it is reported that the Australian Tax Office is currently conducting laboratory tests on suspect fuel, concerns have also been expressed whether adequate measures are in place (both at the Federal and State level) to effectively police the anti-substitution laws.(28) More recently, claims have been made by petroleum industry representatives that the Commonwealth has failed to adequately respond to the reports of ongoing substitution scams.(29)
Angus Martyn
3 March 2000
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.
ISSN 1328-8091
© Commonwealth of Australia 2000
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Published by the Department of the Parliamentary Library, 2000.