House of Representatives

Explanatory Memorandum

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

Glossary

The following abbreviations and acronyms are used throughout this Explanatory Memorandum.

General outline and financial impact

Excise Tariff Amendment Bill (No. 1) 2001 and Customs Tariff Amendment Bill (No. 2) 2001

The purpose of this legislation is to incorporate proposed amendments to the Excise Tariff Act and the Customs Tariff Act, to give effect to a budgetary measure, 2 tax reform initiatives that accompanied the introduction of the New Tax System, Product Stewardship (Oil) arrangements and a package of cuts to fuel taxes announced by the Prime Minister on 1 March 2001.

Aviation kerosene

These Bills will incorporate proposed alterations to the Excise Tariff Act and the Customs Tariff Act to increase the rates of excise and customs duty on aviation kerosene to fund airport regulation activities by the ACCC.

Date of effect: The alterations to the rates of excise and customs duty were initially notified by Excise Tariff Notice No. 1 (2000) and Customs Tariff Notice No. 1 (2000), which were published in Special Commonwealth Gazettes Nos. S247 and S244 on 12 May 2000.

Excise Tariff Proposal No. 1 (2000) and Customs Tariff Proposal No. 3 (2000) were tabled in Parliament on 6 June 2000. The alterations will take effect on and from 13 May 2000.

Proposal announced: A measure was announced in the 2000-2001 Budget to increase the rates of excise and customs duty on aviation kerosene to provide for recovery of airport regulation costs of the ACCC.

Financial impact: The increase in the rates of aviation kerosene excise and customs duty by 0.036 cents per litre to 2.795 cents per litre is targeted towards the beneficiaries of airport economic regulation (the airlines). It provides required revenue of $0.9 million per annum to fund the budgetary measure.

Compliance cost impact: Ongoing compliance costs are negligible for the Government and the aviation industry, as legislative and administrative arrangements are already in place.

Alcoholic beverages

These Bills will incorporate proposed alterations to the Excise Tariff Act and Customs Tariff Act to:

•

increase the excise and customs duty on alcoholic beverages to offset the removal of the WST;

•

introduce a 3-tiered duty rate structure for beer;

•

apply excise and customs duty to other alcoholic beverages not previously covered, and not subject to the WET; and

•

bring excise and customs duty rates for non-potable spirits into line with rates applying to other spirits.

Date of effect: The alterations to the Excise Tariff Act and Customs Tariff Act were proposed by Excise Tariff Proposal No. 2 (2000), and Customs Tariff Proposal No. 2 (2000), and tabled in Parliament on 21 June 2000. The amendments will take effect on and from 1 July 2000.

Proposal announced: The reform proposal was announced as part of the ANTS policy document in August 1998. In this document, the Government outlined a number of changes to the existing treatment of alcoholic beverages.

Financial impact: The excise and customs duty levied on alcoholic beverages by this Bill commenced on 1 July 2000 and are budgeted to raise around $1.2 billion in 2000-2001.

Compliance cost impact: The change in the type of products subject to alcohol excise rates will affect approximately 20 new and 50 existing clients. The cost of compliance for new clients arises from the need to obtain a licence, submit plans of their premises and ensure adequate bond facilities, monitor production, delivery and sales, and remit excise on an ongoing basis. Existing clients need only register for a new category of excisable product. They already have systems in place to monitor production and calculate excise payable.

Summary of regulation impact statement

Regulation impact on business

Impact: There will be some impact on manufacturers of alcoholic beverages who are new clients to the ATO as well as existing excise clients. Once the initial compliance measures are in place it is expected that the impact and cost of compliance will be minimal. Alcoholic beverages are likely to rise slightly in price due to the changes.

Main points:

•

The tax reform changes will impact on a small number of manufacturers of alcoholic beverages who are not currently subject to excise. These manufacturers will be required to be licensed and pay excise. It is expected that changes to computer systems to meet record keeping obligations would be minimal. Around 50 existing clients will be required to pay excise on beverages not previously covered by excise.

•

Retailers and consumers will be relatively unaffected by the changes. The price of a carton of full strength beer is likely to rise slightly and the beverages that have previously not been subject to excise are also expected to rise by the amount that the new excise duty exceeds the sales tax formerly payable.

•

Based on the small number of clients affected, the initial cost of compliance is estimated to be less than $300,000 across the industry. The ongoing cost of compliance is estimated to be minimal.

Petroleum products (ANTS measure)

These Bills will incorporate proposed alterations to the Excise Tariff Act and Customs Tariff Act to reduce the rates of excise and customs duty for certain fuels and potential substitutes (petrol, diesel and other petroleum products attracting excise at the unleaded/diesel or leaded petrol rate) to offset the introduction of the GST.

Date of effect: Excise Tariff Proposal No. 3 (2000) and Customs Tariff Proposal No. 4 (2000) were tabled in Parliament on 29 June 2000. The amendments will take effect on and from 1 July 2000.

Proposal announced: The reform proposal was announced as part of the ANTS policy document in August 1998. In this document, the Government outlined that excise on petrol and diesel would be reduced on introduction of the GST so that pump prices need not rise.

Financial impact: The reduction in rates of excise and customs duty for certain fuels and potential substitutes of 6.656 cents per litre commenced on 1 July 2000 and are budgeted to reduce excise revenue by around $2.1 billion in 2000-2001.

The excise duty reductions are complemented by the Fuel Sales Grant Scheme, which will provide grants to retailers of petrol and diesel in non-metropolitan and remote areas to address the divergence in fuel prices between the cities and regional areas. Taken together, these measures give effect to the Governments commitment to maintaining fuel prices for consumers as a result of the introduction of the GST.

Compliance cost impact: Negligible.

Product Stewardship (Oil)

The Excise Tariff Amendment Bill No. 1 (2001) will incorporate proposed alterations to the Excise Tariff Act to change the way the rate of excise for item 15 products is expressed to ensure that indexation applies correctly to such products, and allow set-offs of customs duty against excise liability for petroleum products in certain instances.

Date of effect: The alteration to the way the rate of excise for item 15 product is expressed was initially notified by Excise Tariff Notice No. 1 (2001), which was published in Special Commonwealth Gazette No. S31 on 29 January 2001, and tabled as Excise Tariff Proposal No. 1 (2001), to take effect on and from 31 January 2001. The alterations to allow set-offs were proposed by Excise Tariff Proposal No. 2 (2001), to take effect on and from 1 January 2001. Both proposals were tabled in Parliament on 8 February 2001.

Proposal announced: The alterations correct technical deficiencies identified in existing legislation.

Financial impact: The set-off alterations provide a benefit to importers of excise equivalent petroleum products by averting a double taxation problem, where the imported product is used in local manufacture of excisable petroleum products. The changes allow set-offs of customs duty when calculating excise liability for petroleum products.

Compliance cost impact: Nil.

Fuel tax reductions

These Bills will incorporate proposed alterations to the Excise Tariff Act and the Customs Tariff Act to reduce the rates of excise and customs duty for certain petroleum fuels.

Date of effect: Excise Tariff Proposal No. 3 (2001) and Customs Tariff Proposal No. 2 (2001) were tabled in Parliament on 1 March 2001. The amendments will take effect on and from 2 March 2001.

Proposal announced: A package of measures to cut fuel taxes was announced by the Prime Minister on 1 March 2001. Reductions in the rates of excise and customs duty on certain petroleum fuels form part of this package.

Financial impact: The impact of the reduction in rates of excise and customs duty for certain petroleum fuels on the 2000-2001 Budget is $140 million.

Compliance cost impact: Negligible.

Chapter 1 - Aviation kerosene

Excise tariff amendment bill (No. 1) 2001

Outline of chapter

1.1 This chapter explains an amendment to the Excise Tariff Act that changes the rate of excise duty for kerosene used as fuel in aircraft (commonly known as avtur).

1.2 Schedule 1, Part 1, item 1 substitutes a new rate of excise duty for Excise Tariff subitem 11(A) of the Schedule to the Excise Tariff Act.

Context of reform

1.3 As part of the airports privatisation process, the Government introduced a framework for economic regulation of airports in 1997. These regulatory arrangements have been designed to achieve an appropriate balance between public interest and private commercial objectives. The ACCC has primary responsibility for implementing and administering the framework of economic regulation at the privatised airports and Sydney airport.

1.4 These regulatory arrangements at airports are more extensive than originally envisaged and funded for. To provide the additional funding required, a measure was announced in the 2000-2001 Budget to increase the rates of excise and customs duty for avtur by 0.036 cents per litre to 2.795 cents per litre. An increase in the rates of excise and customs duty for avtur was considered an administratively efficient method of cost recovery. The alteration to the Schedule to the Excise Tariff Act gives effect to this budget measure.

Summary of new law

1.5 Excise Tariff subitem 11(A) of the Schedule to the Excise Tariff Act is repealed and substituted with a new rate of excise duty of 2.795 cents per litre.

Detailed explanation of new law

1.6 The Schedule to the Excise Tariff Act is altered by repealing subitem 11(A) and substituting the subitem with a new rate of excise duty of 2.795 cents per litre. The substituted rate is taken to have effect on and from 13 May 2000.

Customs Tariff Amendment Bill (No. 2) 2001

Outline of chapter

1.7 This chapter explains an amendment to the Customs Tariff Act that changes the rate of customs duty for kerosene used as fuel in aircraft (commonly known as avtur).

1.8 Schedule 1, Part 1, item 1 substitutes a new rate of customs duty for tariff subheading 2710.00.40 of Schedule 3 to the Customs Tariff Act.

Context of reform

1.9 As part of the airports privatisation process, the Government introduced a framework for economic regulation of airports in 1997. These regulatory arrangements have been designed to achieve an appropriate balance between public interest and private commercial objectives. The ACCC has primary responsibility for implementing and administering the framework of economic regulation at the privatised airports and Sydney airport.

1.10 These regulatory arrangements at airports are more extensive than originally envisaged and funded for. To provide the additional funding required, a measure was announced in the 2000-2001 Budget to increase the rate of excise and customs duty for avtur by 0.036 cents per litre to 2.795 cents per litre. An increase in the rates of excise and customs duty for avtur was considered an administratively efficient method of cost recovery. The alterations to Schedule 3 to the Customs Tariff Act give effect to this budget measure.

Summary of new law

1.11 The rate of customs duty for tariff subheading 2710.00.40 in column 3 of Schedule 3 to the Customs Tariff Act is repealed and substituted with a new rate of duty of 2.795 cents per litre.

Detailed explanation of new law

1.12 Schedule 3 to the Customs Tariff Act is altered by repealing the rate of customs duty in column 3 of subheading 2710.00.40 and substituting a new rate of 2.795 cents per litre. The substituted rate is taken to have effect on and from 13 May 2000.

Chapter 2 - Alcoholic beverages

Excise tariff amendment bill (No. 1) 2001

Outline of chapter

2.1 This chapter explains amendments to the Excise Tariff Act which change the treatment of alcoholic beverages and give effect to the Governments tax reform measures.

2.2 Schedule 1, Part 2, items 2 to 5 introduce a new structure and rate for alcoholic beverages.

Context of reform

2.3 The August 1998 policy document entitled ANTS outlined the following changes to the existing taxation treatment of alcoholic beverages to take effect on and from 1 July 2000:

•

increase excise on beer and other alcoholic beverages (not covered by the WET) to offset the removal of the 37% WST; and

•

apply excise to other alcoholic beverages, which are currently non-excisable and not subject to WET.

2.4 The changes to the Excise Tariff Act give effect to these policies by introducing a new tariff structure for alcohol.

Summary of new law

2.5 The Excise Tariff Act is amended to reflect a number of changes to the existing treatment of alcoholic beverages. These changes include:

•

increased excise on beer, spirits, liqueurs and alcoholic beverages not subject to WET to offset the removal of the WST;

•

the introduction of a 3-tiered duty rate structure for beer;

•

applying excise duty to all alcoholic beverages not previously covered (other than those subject to WET); and

•

to bring excise duty rates for non-potable spirits into line with rates applying to other spirits.

Detailed explanation of new law

Alterations to the Schedule to the Excise Tariff Act 1921

2.6 The existing definition of beer has been repealed and substituted with a definition that requires beverages classified as beer to meet 4 specific requirements relating to the manufacture and content. This definition provides a distinction between beer and other alcoholic beverages, and reflects the proposed draft definition of beer in the Australia New Zealand Food Standards.

2.7 A definition of other excisable beverage has been inserted that will bring within the Excise regime all Australian made alcoholic beverages other than those subject to WET. It also provides a clear link between the administrative provisions of the Excise Act, and the Excise Tariff Act, which imposes excise duty on alcohol.

2.8 A paragraph has been inserted after the definition of whisky to extend the current exemption from the Excise Tariff of home brewed beer for personal consumption to include other home brewed alcoholic beverages which, if commercially produced, would come within the meaning of other excisable beverages. All distilled alcohol, however, remains within the Excise Tariff.

2.9 In item 1 of the Schedule to the Excise Tariff Act, the current single rate of excise duty relating to beer is replaced with a 3-tiered duty rate structure. The excise duty rate is also increased to make up for the removal of the WST and the introduction of the GST.

2.10 The percentage based rate of excise duty applicable to subitem 1BB of the Schedule, beer produced by BOPS, is reduced to offset the increased $ per litre of alcohol rate applicable to other beer which is used for the calculation of duty on these goods. This reduction recognises that beer produced by BOPS for non-commercial purposes using commercial facilities was not previously liable to sales tax.

2.11 A 3-tiered structure for beer is introduced, with different duty rates for each tier based on alcohol content (exceeding the excise free threshold of 1.15%), namely:

•

low strength beer (paragraph 1C(1) of the Schedule) not exceeding 3.0% by volume of alcohol;

•

mid strength beer (paragraph 1C(2) of the Schedule) exceeding 3.0% but not exceeding 3.5% by volume of alcohol; and

•

full strength beer (paragraph 1C(3) of the Schedule) exceeding 3.5% by volume of alcohol.

2.12 A rate for other excisable beverages of alcoholic strength by volume not exceeding 10% is inserted (subitem 1D of the Schedule) to bring designer drinks, alcoholic sodas, coolers and the like into the excise regime.

2.13 Item 2 of the Schedule applies excise duty to alcoholic beverages exceeding 10% alcohol by volume that are not currently subject to excise or WET (subitem 2H), aligns the duty rate for non-potable spirits (subitem 2O of the Schedule) with rates applying to other spirits and increases the rate of excise duty on spirits to make up for the removal of the WST.

Customs Tariff Amendment Bill (No. 2) 2001

Outline of chapter

2.14 This chapter explains amendments to the Customs Tariff Act which change the treatment of alcoholic beverages and give effect to the Governments tax reform measures.

2.15 Schedule 1, Part 2, items 2 to 13 implement changes to the customs duty on imported alcohol and alcoholic beverages. These amendments complement changes contained in the Excise Tariff Amendment Bill (No. 1) 2001.

2.16 The amendments also implement structural changes to provide tariff subheadings for goods subject to the provisions of the WET Act.

Context of reform

2.17 The August 1998 policy document entitled ANTS outlined the following changes to the existing taxation treatment of alcoholic beverages to take effect on and from 1 July 2000:

•

increase excise on beer and other alcoholic beverages (not covered by the WET) to offset the removal of the 37% WST; and

•

apply excise to other alcoholic beverages, which are currently non-excisable and not subject to the WET.

2.18 The changes to the Customs Tariff Act give effect to these policies by introducing a new tariff structure and customs duty rates for imported alcohol and alcoholic beverages. Complementary changes are made to the Excise Tariff Act to ensure uniform duty treatment with Australian manufactured products.

Summary of new law

2.19 The Customs Tariff Act is amended to reflect a number of changes to the existing treatment of alcoholic beverages. These changes include:

•

increased customs duty on beer, spirits, liqueurs and alcoholic beverages not subject to WET to offset the removal of the WST;

•

the introduction of a 3-tiered duty rate structure for beer;

•

applying customs duty to all alcoholic beverages not previously subject to duty (other than those subject to WET);

•

bringing customs duty rates for denatured spirits into line with rates applying to other spirits;

•

the provision of Additional Notes which describe wine and wine products that are subject to WET (these notes replicate similar provisions which are contained in the WET Act; and

•

complementary amendments to the Table of paired customs subheadings and excise items in section 19(1) of the Customs Tariff Act. This section provides the link between customable and excisable goods (alcoholic beverages, tobacco and petroleum products), and permits rates of customs duty to be adjusted in line with movements in the rates of excise duty as a result of indexation.

Detailed explanation of new law

2.20 The taxation reforms for alcohol are confined to tariff headings 2203 to 2208 of the Customs Tariff. The amendments contained in the Excise Tariff Amendment Bill (No. 1) 2001 have been reproduced in the structure of the previously listed tariff headings. Certain consequential amendments have been made to associated legislation to ensure the completeness of the changes.

2.21 Item 2 of Part 2 of Schedule 1 to this Bill contains changes to the Table of paired customs tariff subheadings and excise items in section 19(1) of the Customs 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 alcohol subheadings and items.

2.22 Item 3 of Part 2 of Schedule 1 to this Bill replaces the superfluous Additional Note 1 to Chapter 22 with a new Additional Note. This new note defines alcoholic strength by volume as a reference to the strength by volume of ethyl alcohol.

2.23 Item 4 inserts Additional Notes 3 to 8. Each of the Notes defines the different type of wine products that are now subject to WET. As WET is applied to the same imported wine and wine products as their Australian equivalents, these Additional Notes replicate the definitions for similar locally made products contained in Subdivision 31A of the WET Act to ensure uniform tax treatment.

2.24 Items 5 to 13 give effect to the tax reform initiatives for alcohol announced in ANTS by legislating a new tariff structure for headings 2203 (beer), 2204 (wine), 2205 (vermouth and other wine products), 2206 (other fermented beverages), 2207 (undenatured ethyl alcohol) and 2208 (spirits and liqueurs) while retaining the existing industry assistance ad valorem rates of duty. In this restructure, new tariff subheadings have been provided for each category of beverage classified within these headings, to apply the requisite excise equivalent rate of duty. This procedure has ensured uniform duty treatment for imported and locally produced alcoholic beverages. The revised tariff structure is outlined in paragraphs 2.25 to 2.29.

2.25 Alcoholic beverages with an alcohol content not exceeding 1.15% by volume of alcohol retain the industry assistance ad valorem customs duty rates as previously. The relevant subheadings which fall in this category are:

2.26 Alcohol and alcoholic beverages (excluding beer) containing more than 1.15% of alcohol and not exceeding 10% by volume of alcohol are subject to the full strength beer rate ($30.46 per litre of alcohol). The relevant subheadings which fall in this category are:

2.27 Alcohol and alcoholic beverages (excluding beer and brandy) containing more than 10% of alcohol are subject to the spirit rate ($51.58 per litre of alcohol). The relevant subheadings which fall in this category are:

2.28 Wine and wine products which are subject to WET and for which this legislation provides separate subheadings are:

2.29 A 3-tiered duty structure is introduced for imported beer. The following parameters have been established:

•

Beer exceeding 1.15% but not exceeding 3.0% by volume of alcohol. This beer is known as light beer and attracts a rate of $41.67 per litre of alcohol. Light beer is classified in subheadings 2203.00.81 and 2206.00.72 in the new tariff structure.

•

Beer exceeding 3.0% but not exceeding 3.5% by volume of alcohol. This beer is known as mid strength beer and attracts a rate of $35.38 per litre of alcohol. Mid strength beer is classified in subheadings 2203.00.82 and 2206.00.73.

•

Beer exceeding 3.5% by volume of alcohol. This beer is known as full strength beer and attracts a rate of $30.46 per litre of alcohol. Full strength beer is classified in subheadings 2203.00.89 and 2206.00.79.

2.30 Brandy made wholly from grape spirit is classified in subheading 2208.20.10 and attracts a rate of $48.17 per litre of alcohol.

Regulation impact statement - as tabled with Excise Tariff Proposal (No. 2) 2000 on 21 June 2000

Policy objective

2.31 The August 1998 policy document entitled ANTS outlined the following changes to the existing taxation treatment of alcoholic beverages, to take effect from 1 July 2000:

•

introduce a WET to replace the difference between the 41% WST and the GST (the legislation for this measure is already in place);

•

increase excise on beer and other beverages(not covered by the WET) to offset the removal of 37% WST; and

•

apply excise to other alcoholic beverageswhich are currently non-excisable and not subject to the WET.

2.32 The changes to the Excise Tariff Actin this Excise Tariff Proposal give effect to these policies (except the WET) by introducing a new tariff structure for alcohol. The new structure contains:

•

a 3-tiered structure for beer with different duty rates for each tier, based on alcohol content;

•

two new subitems to impose excise on alcoholic beverages not currently subject to excise; and

•

adjusted rates of excise duty to offset the removal of the WST.

2.33 In setting the pricing policy in ANTS, the Governments objectives were to limit the change in excise so that the retail price of a carton of full strength beer need only increase by the estimated general price increase associated with indirect tax reform (1.9%). The new duty rates for beer will ensure the retail price of a carton of low alcohol beer need not rise and, in some cases, may fall slightly. With other beverages, the change in the rates of excise is limited such that the retail price of whisky, which is currently heavily taxed, need not change. The brandy rate will increase but remain below the rate applying to other spirits.

2.34 In addition to the measures required to implement the ANTS policies, the Excise Tariff Proposal includes a new definition for beer to reflect the proposed draft Australia New Zealand Food Standards beer definition, being alcohol which is the product of the yeast fermentation of an aqueous extract of malted or unmalted cereals, whether or not containing other sources of carbohydrates; contains hops, or extracts thereof, or other bitters; has not had added to it, at any time, any alcohol from any other source; and contains more than 1.15% by volume of alcohol.

Implementation options

2.35 Excise duty is levied when excisable goods such as beer and spirits are entered into home consumption by the manufacturer or licensed distributor. Levying excise duty at this point achieves the relative price impacts on beer and spirits as outlined in ANTS.

2.36 The reforms to the taxation arrangements were announced as part of ANTS. That document explicitly indicates that alcohol tax reform policy objectives are to be implemented by changing the existing excise regime. This will ensure that the principles and concepts underlying alcohol tax reform are familiar and well accepted by excise clients. Accordingly, no other options were considered.

2.37 This Excise Tariff Proposal to alter the Excise Tariff Actis supported administratively by:

•

the Excise Amendment (Alcoholic Beverages) Bill 2000, which was tabled in the Parliament on 6 April 2000, to give effect to the administrative arrangements for the collection of excise for alcoholic beverages not currently subject to excise; and

•

the Excise Amendment Regulations 2000 (No. 1), No. 116 of 2000, to extend the licensing and manufacturing provisions to manufacturers of other excisable beverages and allow the use of imported spirit in the local production of other excisable beverages.

Assessment of impact

Distillers, excise manufacturers and licensed distributors

2.38 The tax reform changes will impact on a small number (around 20) of manufacturers of alcoholic beverages who are not currently clients of the ATO, that is, those who are producing alcoholic beverages that are not currently subject to excise (e.g. alcoholic sodas). These manufacturers will be required to be licensed and pay excise on their products that will fall within the definition of other excisable beverages. The current annual fee for a licence to manufacture excisable goods is $10.

2.39 In order to calculate their excise liability, these manufacturers will need to record what products they have produced and the volume of alcohol in each production run, have a stock inventory system to identify excisable products, and a system to calculate the excise payable on these products. The systems needed by these manufacturers to calculate their excise duty liability are relatively straightforward. It is envisaged that these manufacturers would already have computer systems to maintain their business records, and that these systems could be readily adapted to meet the record keeping obligations under the Excise legislation.

2.40 The changes will also have an impact on around 50 existing clients who are already paying excise on some of their products. These manufacturers will be liable to pay excise on all alcoholic beverages included in the Excise Tariff. They will need to adjust their current systems to ensure that alcoholic beverages not previously subject to excise are included in duty calculations. Some clients may need to approach the ATO to amend existing approvals to move and store excisable goods without paying the duty liability (underbond goods) to include other excisable beverages. However, there are no fees associated with this approval process.

Retailers and consumers

2.41 Retailers and consumers will be relatively unaffected by the changes to the ExciseTariff. The price of a carton of low alcohol beer need not rise and, in some cases, may fall slightly. The retail price of a carton of full strength beer should only increase by the estimated general price increase associated with indirect tax reform, that is, 1.9%. The change in excise for spirits will be limited so that the retail price of whisky will not need to change.

2.42 The impact on the price of beverages that are currently not subject to excise once they become subject to excise is difficult to determine as it will depend on the level of WST that is currently payable and the excise that will be payable. However, in general the price of these products is expected to rise.

The ATO and Customs

2.43 The changes associated with alcohol tax reform impact on the ATO and Customs. There will be some implementation costs related with updating computer duty rate look-up tables and licensing of new clients. However, as the measures will utilise current excise and customs administration frameworks, the net impact of this measure is expected to be minimal.

Analysis of costs/benefits

Costs of compliance

2.44 The change in the type of products subject to alcohol excise rates will affect approximately 20 new and 50 existing clients. The cost of compliance for new clients arises from needing to obtain a licence, submit plans of their premises and ensure adequate bond facilities initially, and from a need to monitor production, delivery and sales and remit excise on an ongoing basis. Existing clients need only register for a new category of excisable product, and already have systems in place to monitor production and calculate excise payable.

2.45 Based on the small number of new clients affected, the initial cost of compliance is estimated to be less than $300,000. The ongoing cost of compliance is estimated to be minimal.

Administration costs

2.46 There will be very little impact on administrative costs for the ATO or Customs as existing systems and processes will be utilised. There will be no additional salary costs or ongoing administrative funding costs for the measures. Initial implementation costs will be minor, as these will be limited to computer system changes and processing licences for the new clients.

Government revenue

2.47 The increase in excise revenue is estimated at around $1.1 billion per annum, but this is offset by the removal of the WST.

Economic costs

2.48 The increase in excise rates, taken with the removal of WST and the introduction of the GST, should have little impact on resource allocation or consumption patterns. The price impacts for alcoholic beverages are broadly comparable to that expected for all goods and services across the economy.

•

In relation to beer, the consumption of lower alcohol beer should be encouraged over full strength beer.

•

For spirits, there should be little change although there may be an increase in demand for pre-mix spirits which will be subject to the full strength beer excise rate instead of the spirits rate.

•

For ready to drink products not currently subject to excise, there may be a reduction in demand as the measure removes concessional tax treatment and applies a more consistent taxation regime to products in the ready to drink category.

The measure is not expected to have a significant impact on international trade flows.

Consultation

2.49 Ongoing consultation has been undertaken with a number of peak body alcohol industry associations on the tax reform measures and the proposed implementation since the reforms were announced in ANTS.

Conclusion and recommended option

2.50 The alcohol tax reform policy objectives as outlined in ANTS can be achieved with the existing excise regime provisions. This will ensure that the principles and concepts underlying alcohol tax reform are familiar and well accepted by excise clients.

Chapter 3 - Petroleum products (ANTS measure)

Excise tariff amendment bill (No. 1) 2001

Outline of chapter

3.1 This chapter explains amendments to the Excise Tariff Act which reduce the excise for certain fuels and potential substitutes (petrol, diesel and other petroleum products attracting excise at the unleaded/diesel or leaded petrol rate) to offset the introduction of the GST.

3.2 Schedule 1, items 6 and 7 substitute new rates of excise for the affected subitems of the Schedule to the Excise Tariff Act.

Context of reform

3.3 The policy document, ANTS, outlined the Governments commitment to ensure that the pump price of petrol and diesel need not rise with the introduction of the GST. Changes to the Excise Tariff Act give effect to this policy.

Summary of new law

3.4 Rates of excise for subitems of the Schedule to the Excise Tariff Act that are for certain fuel use, including potential substitutes, are repealed and substituted with new rates reflecting a reduction of 6.656 cents per litre. This amendment coincides with the introduction of the GST.

Detailed explanation of new law

3.5 The Schedule to the Excise Tariff Act is amended by repealing all rates of excise duty for subitems of item 11 that are for certain fuel use, including potential substitutes, and substituting those rates with new rates reflecting a reduction of 6.656 cents per litre. The substituted rates are taken to have effect on and from 1 July 2000.

Customs Tariff Amendment Bill (No. 2) 2001

Outline of chapter

3.6 This chapter explains amendments to the Customs Tariff Act that reduce the rates of customs duty for certain fuels and potential substitutes (petrol, diesel and other petroleum products attracting customs duty at the unleaded/diesel or leaded petrol rate) to offset the introduction of the GST.

3.7 Schedule 1, Part 2, items 14 to 16 substitute new rates of customs duty for the affected subheadings of Schedule 3 to the Customs Tariff Act.

Context of reform

3.8 The policy document, ANTS, outlined the Governments commitment to ensure that the pump price of petrol and diesel need not rise with the introduction of the GST. Changes to the Customs Tariff Act give effect to this policy.

Summary of new law

3.9 The rates of customs duty in column 3 for those Customs Tariff subheadings of Schedule 3 to the Customs Tariff Act that are for certain fuel use, including potential substitutes, are repealed and substituted with new rates reflecting a reduction of 6.656 cents per litre. This amendment coincides with the introduction of the GST.

Detailed explanation of new law

3.10 The rates of customs duty in column 3 for Customs Tariff subheadings of Schedule 3 to the Customs Tariff Act that are for certain fuel use, including potential substitutes, are repealed and substituted with new rates reflecting a reduction of 6.656 cents per litre. The substituted rates are taken to have effect on and from 1 July 2000.

Chapter 4 - Product Stewardship (Oil)

Excise tariff amendment bill (No. 1) 2001

Outline of chapter

4.1 This chapter outlines amendments to the Excise Tariff Act which alter the way the rate of excise for item 15 product is expressed and provide for set-offs of customs duty as excise liability for petroleum products in certain instances.

4.2 Schedule 1, items 8 to 12 substitute an excise duty rate expressed to 2 decimal places with a rate expressed to 5 decimal places and introduces changes to section 6G provisions.

Context of reform

Indexation

4.3 On 1 January 2001, goods classifiable to item 15 of the Schedule to the Excise Tariff Act, namely petroleum based oils and lubricants and their synthetic equivalents, became excisable. These goods are those dutiable under the Product Stewardship (Oil) arrangements. Excise equivalent imported products are also dutiable at the same rate.

4.4 The rate of excise applicable to item 15 product is set out in the legislation to 2 decimal places, that is, $0.05 per litre or kilogram. Other rates of excise for excisable products are set out to 5 decimal places, for example, $0.38143 per litre for unleaded petrol.

4.5 The number of decimal places in an excise rate is set in legislation, and unless all like products have a rate expressed to the same number of decimal points, indexation provisions may not apply correctly owing to the effects of rounding.

Set-off of customs duty

4.6 At present there is a provision in the excise legislation for previously paid excise duties on input petroleum product to be set-off against the final amount of excise payable on a manufactured excisable petroleum product. A similar provision does not exist for previously paid excise equivalent customs duties on input product to be set-off against the excise payable on a manufactured excisable product.

4.7 That is, should an importer choose to pay the customs duty at the border on an input petroleum product, as the legislation now stands there is no mechanism to avoid duty being paid again on the final product.

Summary of new law

4.8 The amount $0.05 for the rate of excise duty for subitems 15(A) to 15(D) of the Schedule to the Excise Tariff Act is repealed and substituted with $0.05000.

4.9 Section 6G of the Excise Tariff Act is altered to provide for previously paid excise equivalent customs duties on input product to be set-off against the excise payable on a manufactured excisable product.

There are no references to customs duty paid when referring to previously paid duties.

Detailed explanation of new law

4.10 The amount $0.05 for the rate of excise duty for subitems 15(A) to 15(D) of the Schedule to the Excise Tariff Act are repealed and substituted with $0.05000.

4.11 Section 6G of the Excise Tariff Act is amended to allow set-offs of customs duty when calculating excise liability for petroleum products. The amendments are as follows:

•

in paragraph 6G(1)(b), the definition of blending rate is altered by adding reference to the rate applicable to item 15 goods or imported equivalent goods;

•

a definition of excise equivalent rate is inserted at subsection 6G(1);

•

the definition at subsection 6G(1) of previously paid duties is amended to include any customs duties paid on imported goods that are to be used in an excisable blended product; and

•

subsection 6G(4) is repealed and substituted to allow customs duty paid on imported goods to be taken into account in the working out of previously paid duties.

Chapter 5 - Fuel tax reductions

Excise tariff amendment bill (No. 1) 2001

Outline of chapter

5.1 This chapter explains amendments to the Excise Tariff Act which reduce the rates of excise duty for certain petroleum fuels.

5.2 Schedule 1, items 13 to 17 substitute new rates of excise for the affected subitems of the Schedule to the Excise Tariff Act.

Context of reform

5.3 On 1 March 2001, the Prime Minister announced a package of cuts to fuel taxes. As part of this package, the following changes to the rates of excise duty on certain petroleum products are to be introduced with effect from 2 March 2001:

•

reduce the rates of duty by 1.5 cents per litre for unleaded petrol, leaded petrol, diesel and other petroleum products that attract equivalent rates of duty; and

•

reduce rates of duty for aviation fuels and those petroleum products attracting concessional rates of duty by a proportional amount.

5.4 Changes to the Excise Tariff Act give effect to the Prime Ministers announcement.

Summary of new law

5.5 Rates of excise for subitems of the Schedule to the Excise Tariff Act that attract the unleaded/diesel or leaded petrol rate are repealed and substituted with new rates reflecting a reduction of 1.5 cents per litre.

5.6 Rates of excise for subitems of the Schedule to the Excise Tariff Act that are for use as fuel in aircraft and for those subitems that attract concessional rates of duty are repealed and substituted with new rates reflecting a reduction per litre that is proportional to that of the 1.5 cents per litre reduction applying to unleaded petrol and diesel.

Detailed explanation of new law

5.7 The Schedule to the Excise Tariff Act is amended by repealing all rates of excise duty for certain subitems of item 11 and substituting those rates with new rates, as follows:

•

the rate for unleaded petrol, diesel and other petroleum products that attract the equivalent rate of duty is reduced by 1.5 cents per litre to $0.38143 cents per litre;

•

the rate for leaded petrol and other petroleum products that attract the equivalent rate of duty is reduced by 1.5 cents per litre to $0.40516 cents per litre;

•

the rate for avtur is reduced by 0.112 cents per litre to $0.02845 cents per litre;

•

the rate for aviation gasoline is reduced by 0.110 cents per litre to $0.02808 cents per litre; and

•

the rate for those petroleum products attracting concessional rates of duty is reduced by 0.297 cents per litre to $0.07557 cents per litre.

5.8 The substituted rates are taken to have effect on and from 2 March 2001.

Customs Tariff Amendment Bill (No. 2) 2001

Outline of chapter

5.9 This chapter explains amendments to the Customs Tariff Act that reduce the rates of customs duty for certain petroleum fuels.

5.10 Schedule 1, Part 3, items 17 to 22 substitute new rates of customs duty for the affected subheadings of Schedule 3 to the Customs Tariff Act.

Context of reform

5.11 On 1 March 2001, the Prime Minister announced a package of cuts to fuel taxes. As part of this package, the following changes to the rates of customs duty on certain petroleum products are to be introduced with effect from 2 March 2001:

•

reduce the rates of duty by 1.5 cents per litre for unleaded petrol, leaded petrol, diesel and other petroleum products that attract equivalent rates of duty; and

•

reduce rates of duty for aviation fuels and those petroleum products attracting concessional rates of duty by a proportional amount.

5.12 Changes to the Customs Tariff Act give effect to the Prime Ministers announcement.

Summary of new law

5.13 The rates of customs duty in column 3 for those Customs Tariff subheadings of Schedule 3 to the Customs Tariff Act that attract the unleaded/diesel or leaded petrol rate are repealed and substituted with new rates reflecting a reduction of 1.5 cents per litre.

5.14 The rates of customs duty in column 3 for those Customs Tariff subheadings of Schedule 3 to the Customs Tariff Act that are for use as fuel in aircraft and for those subheadings that attract concessional rates of duty are repealed and substituted with new rates reflecting a reduction per litre that is proportional to that of the 1.5 cents per litre reduction applying to unleaded petrol and diesel.

Detailed explanation of new law

5.15 The rates of customs duty in column 3 for certain Customs Tariff subheadings of Schedule 3 to the Customs Tariff Act are repealed and substituted with new rates, as follows:

•

the rate for unleaded petrol, diesel and other petroleum products that attract the equivalent rate of duty is reduced by 1.5 cents per litre to $0.38143 cents per litre;

•

the rate for leaded petrol and other petroleum products that attract the equivalent rate of duty is reduced by 1.5 cents per litre to $0.40516 cents per litre;

•

the rate for avtur is reduced by 0.112 cents per litre to $0.02845 cents per litre;

•

the rate for aviation gasoline is reduced by 0.110 cents per litre to $0.02808 cents per litre; and

•

the rate for those petroleum products attracting concessional rates of duty is reduced by 0.297 cents per litre to $0.07557 cents per litre.

5.16 The substituted rates are taken to have effect on and from 2 March 2001.