Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 1 Removal of excise exemption for fuel ethanol
Outline of chapter
1.1 This chapter explains amendments to the Excise Tariff Act 1921 that remove the 'Free' excise rate for fuel ethanol and impose an excise duty rate equivalent to that applying to petroleum, and provide a new formula for determining the excise duty on fuel/ethanol blends.
1.2 Item 2 of Schedule 1 alters the Excise Tariff Act 1921 by replacing the provisions in section 6G for determining excise duty payable on fuel/ethanol blends. [Schedule 1, item 2]
1.3 Items 5, 7 and 8 of Schedule 1 amend the Schedule to the Excise Tariff Act 1921 by altering the classification and excise duty rate of denatured ethanol for use as fuel. [Schedule 1, items 5, 7 and 8]
1.4 Items 1, 3 and 4 make consequential changes to section 6G which sets out the manner of determining duty payable on excisable blended petroleum products. [Schedule 1, items 1, 3 and 4]
Context of amendments
1.5 The Government announced on 12 September 2002 the removal of the exemption from excise and customs duty for fuel ethanol from 18 September 2002 and the imposition of a duty rate equivalent to that applying to petroleum. The excise measure was implemented by Excise Tariff Proposal No. 4 (2002) and is validated by these amendments to the Excise Tariff Act 1921.
1.6 The measure is part of the Government's strategy to encourage the production and use of biofuels in transport over time. A 12-month production subsidy for existing and new domestic fuel ethanol producers was introduced at the same time. This provided a targeted means of maintaining the use of biofuels in transport in Australia while the Government considered longer-term arrangements. Ongoing arrangements have been announced in the 2003-2004 Federal Budget.
Summary of new law
1.7 The amendments alter the tariff classification provisions in the Excise Tariff Schedule for denatured ethanol for use as fuel, remove the 'Free' excise rate and impose an excise duty rate equivalent to that applying to petroleum, currently 38.143 cents per litre. The amendments also substitute a new formula in the Excise Tariff Act 1921 for determining the excise duty on fuel/ethanol blends.
Comparison of key features of new law and current law
| New law | Current law |
|---|---|
| Denatured ethanol for use as fuel is classified as subitem (K) under item 11 (relating to fuels) of the Excise Tariff Schedule and has an excise rate of $0.38143 per litre. | Denatured ethanol for use as fuel is classified as subitem (R) under item 2 (relating to alcohol) of the Excise Tariff Schedule and has a 'Free' rate. |
| Subsection 6G(2) describes the manner of determining duty payable on blended petroleum products (described as goods classified to item 11 or 12) and denatured ethanol classified to item 11 of the Excise Tariff Schedule. | Subsection 6G(2) describes the manner of determining duty payable on blended gasoline and denatured ethanol classified to item 2 of the Excise Tariff Schedule. |
Detailed explanation of new law
1.8 Denatured ethanol for use as fuel is currently classified in the Excise Tariff Schedule as subitem (R) under item 2, relating to certain alcohol products, and has a 'Free' rate. The amendments alter the classification by omitting subitem 2(R) and adding denatured ethanol for use as fuel as subitem (K) under item 11, relating to petroleum products. The excise duty rate for subitem 11(K) is $0.38143 per litre. [Schedule 1, items 5 and 8]
1.9 The description of the goods covered by item 11 is extended to include 'denatured ethanol for use as fuel in an internal combustion engine' as paragraph (e). [Schedule 1, item 7]
1.10 Section 6G sets out the manner of determining duty payable on blended petroleum products. Currently subsection (2) provides the formula for blends of gasoline and denatured ethanol on the basis that denatured ethanol is classified to item 2 of the Excise Tariff Schedule and at a different rate from gasoline. The amendments repeal subsection (2) and insert a new subsection (2) that refers to denatured ethanol as classified to item 11 of the Excise Tariff Schedule and provides a new formula for determining the excise duty payable on a blend of fuel ethanol and other goods classified to item 11 (petroleum and certain other products) or item 12 (blended petroleum products) of the Excise Tariff Schedule. The formula enables previously paid duty on the constituent elements of the blend to be taken into account. The terms used in the formula, volume, blending rate, excise equivalent rate and previously paid duties are defined. [Schedule 1, item 2]
1.11 The subsection 6G(2) amendments broaden the reference from gasoline to goods classified to item 11 or 12 (petroleum products or blended petroleum products) of the Excise Tariff Schedule to take into account any of the products with which fuel ethanol may be blended. The amendments also specify that, if the petroleum product has a lead content, it does not exceed 13 milligrams per litre, to ensure calculation at the appropriate unleaded petrol rate.
1.12 Consequential amendments omit references to item 2 (the previous classification of fuel ethanol) and insert a reference to item 12 in subsection 6G(4). This subsection sets out the previously paid duties to be taken into account where goods that are constituent elements of a blended product include another blended product. [Schedule 1, items 1, 3 and 4]
Application and transitional provisions
1.13 The amendments are taken to have effect on and from 18 September 2002.
Consequential amendments
1.14 Complementary amendments to the Customs Tariff Act 1995 for customs duty on imported fuel ethanol are being addressed through the Customs Tariff Amendment Bill (No. 2) 2003.