House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Removal of excise exemption for fuel ethanol

This bill amends the Excise Tariff Act 1921 to remove the excise exemption for fuel ethanol and impose an excise duty rate equivalent to that applying to petroleum. The amendments alter the Excise Tariff Schedule classification and duty rate for fuel ethanol and the formula in the Excise Tariff Act 1921 for determining the excise duty on fuel/ethanol blends.

Date of effect: The alterations to the duty provisions for fuel ethanol were notified by Excise Tariff Proposal No. 4 (2002), and commenced on 18 September 2002. The amendments in this bill are taken to have effect on and from that date. Excise Tariff Proposal No. 4 (2002) was tabled in Parliament on 16 September 2002.

Proposal announced: The proposal was announced on 12 September 2002 in a media release by the Prime Minister.

Financial impact: The revenue from the imposition of excise duty on fuel ethanol is estimated to be $26 million in 2002-2003 and $34.4 million in 2003-2004. This revenue is offset by the provision of a domestic production subsidy at a rate equivalent to the excise duty.

Compliance cost impact: Minor compliance and administration costs.

Summary of regulation impact statement

Regulation impact on business

Impact: There is currently a very small number of domestic producers of denatured ethanol for use as fuel. These producers of fuel ethanol are required to pay excise duty at a rate equivalent to that applying to petrol (currently 38.143 cents per litre) on a product previously classified at a 'Free' rate under the Excise Tariff Schedule.

Main points:

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A 12-month production subsidy, equivalent to the excise duty and applying from the date of commencement of the excise on fuel ethanol, 18 September 2002, has been available for new and existing domestic producers of fuel ethanol. Ongoing arrangements have been announced in the 2003-2004 Federal Budget.

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Minor compliance costs may be incurred in adjusting computer systems to the new classification of fuel ethanol, setting up payment procedures and obtaining licences and permissions where these are not already in place.