Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Petroleum products excise
Outline of Chapter
2.1 This Chapter explains amendments to the Excise Tariff Act 1921 (Tariff Act) that incorporates a new tariff structure for petroleum products.
Background to the legislation
2.2 In January 1998 the Government introduced legislation to deter and detect fuel substitution activities. This legislation initially had a pronounced effect on these practices. However, there were indications that fuel substitution had again been increasing as some parties exploited weaknesses in the current tariff.
2.3 In January 1998 the Government also decided to bring certain recycled petroleum products to excise. However, there was some doubt as to how clearly these products were included in the excise regime.
Summary of new law
2.4 The new tariff structure for petroleum products removes those categories of fuel which were being extensively used to evade excise, most notably, those concessional categories relating to gasoline and diesel for use other than as a fuel. The new structure also clarifies the way in which recycled petroleum products are brought to excise by explicitly including these products in the tariff.
Comparison of key features of new law and previous law
| New Law | Previous Law |
|---|---|
| Excise is payable on all diesel and gasoline (other than recycled product, recovered by a process other than refining) at the rate which applies for fuel used in an internal combustion engine. The excise rate differential between leaded and unleaded gasoline is retained. | Where diesel and gasoline were not for use as a fuel, they were available duty free. The products could either be drummed (i.e. in packages not exceeding 210 litres) or in bulk with the chemical marker added. |
| Alternative arrangements are in place to protect those with a legitimate need to access product for use other than as fuel. | Diesel and gasoline were also available at a lesser rate of duty if they were for use as a fuel, but not in an internal combustion engine. |
| Heating oil still available duty free but must contain a chemical marker to show it is for fuel use other than in an internal combustion engine or for use other than as a fuel (eg as a solvent). | Heating oil was available duty free and without a chemical marker if drummed (i.e. in packages not exceeding 210 litres) |
| The list of goods covered by item 11 has been amended to more clearly set out that it includes certain recycled petroleum products. | Did not clearly include certain recycled petroleum products. |
Detailed explanation of new law
A new tariff structure for petroleum products
2.5 Schedule 2 to this Bill provides for a range of new descriptions for petroleum products in item 11 to more explicitly describe the petroleum products subject to excise, particularly recycled petroleum products. The effects of the new descriptions are:
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- heating oil is removed from the classifications that would allow it to be available duty free without the marker;
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- tariff classifications relating to diesel are restructured so that recycled diesel, on which Customs or Excise duty has been paid, recovered by a process other than refining, retains its duty free status. However, all other diesel attracts excise at the rate for use in an internal combustion engine. Alternative arrangements are in place to protect those with a legitimate need to access diesel for use other than as a fuel (e.g. when diesel is used in road construction or as mould release oil);
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- three tariff classifications against which no product had been entered, but which had the capacity to be abused have been removed:
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- condensate for use other than petroleum refinery feedstock, for use other than as a fuel and containing the chemical marker;
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- stabilised crude petroleum oil for use other than petroleum refinery feedstock, for use other than as a fuel and containing the chemical marker; and
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- topped crude petroleum oil for use other than as a fuel and containing the chemical marker.
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- tariff classifications relating to gasoline and other petroleum or shale spirit in subitem 11(H) are restructured:
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- the flash point of products falling to subitem 11(H) is reduced from 23 degrees Celsius to less than zero degrees Celsius. This means that fewer products are included in the same tariff classification as petrol. Products affected by this change move to other tariff subitems but continue to attract the same rate of excise they attracted while in subitem 11(H); and
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- all gasoline (other than gasoline for use in an aircraft) and a few remaining products also in this tariff classification then attract excise at the rate for use in an internal combustion engine. Alternative arrangements are in place to protect those with a legitimate need to access product for use other than as a fuel (e.g. products other than gasoline for use as a solvent).
2.6 The rates and treatment of gasoline for use in an aircraft are unaffected.
2.7 Some minor changes to tariff subitem 11(I) have been made, which essentially covers refined or partly refined petroleum products which do not fall to other subitems in item 11. These changes clarify the products now falling to subitem 11(I), given the other changes that have occurred in the tariff structure. No product affected by these minor changes has its rate of excise duty affected.
2.8 Four other tariff classifications that had the capacity to be abused have been removed. These related to coal tar and coke oven distillates suitable for use as gasoline substitutes and for use other than as a fuel.