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 and Other Legislation Amendment (Compliance Measures) Bill 2004

This bill amends the Excise Act 1901 to strengthen compliance provisions for revenue protection and improve administration arrangements. The amendments:

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enable the Commissioner of Taxation (Collector) to control the delivery of excisable goods for exportation by permissions and, if not satisfied the goods have been exported or otherwise accounted for, to require payment of the excise duty equivalent (Schedule 1, items 4 to 9);

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include tobacco seed and plant in provisions relating to permission for movement of tobacco leaf and unlawful movement; and provide penalties where tobacco seed, plant and leaf delivered for exportation is not moved in accordance with a permission (Schedule 2, items 1 to 4 and 6 to 9);

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enable immediate disposal of certain seized forfeited goods and use of evidentiary certificates relating to those goods in prosecutions and certain other proceedings (Schedule 3, items 1 to 4);

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enable licence and certain other information about a person to be disclosed to a second person to ensure that the second person is able to satisfy legislative requirements (Schedule 4, items 1 to 3); and

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repeal a Customs Act 1901 provision relating to exportation of excisable goods (Schedule 1, either item 1 or items 2 and 3).

Date of effect: Schedule 1, item 1 (if it commences) and items 4 to 9, will commence on Proclamation or on the first day after the end of six months from the date this bill receives Royal Assent. Schedule 1, items 2 and 3, will commence on the later of concurrent commencement with item 4 or immediately after the commencement of item 62 in Part 3 of Schedule 3 to the Customs Legislation Amendment and Repeal (International Trade Modernisation) Act 2001. Schedules 2 to 4 will commence the day after this bill receives Royal Assent.

Proposal announced: Not previously announced.

Financial impact: As the measures are for compliance and administration improvement the extent of revenue protection cannot be quantified.

Compliance cost impact: Minor costs may be incurred by exporters to obtain permission for delivery of excisable goods and tobacco seed, plant and leaf for exportation.

Chapter 1 - Delivery of excisable goods for export

Outline of chapter

1.1 This chapter explains amendments to the Excise Act 1901 that enable the Commissioner of Taxation (Collector) to control the delivery for exportation of excisable goods by permissions and, if not satisfied the goods have been exported or otherwise accounted for, to require payment of the excise duty equivalent. [Schedule 1, items 5 and 8]

1.2 The amendments repeal a provision that allows the Australian Customs Service (Customs) to authorise delivery for exportation of excisable goods from excise licensed premises to a Customs prescribed place and make minor consequential amendments to the Customs Act 1901. [Schedule 1, items 1 and 2]

Context of amendments

1.3 The fundamental control of the Commissioner of Taxation (CEO) over all excisable goods is provided for in section 61 of the Excise Act 1901, while other controls include permission requirements, and offences for contravening those requirements over the movement of excisable goods on which duty has not been paid.

1.4 However, movement of excisable goods for exportation may occur without a permission given under excise legislation. At present excisable goods on which duty has not been paid may be moved away from excise licensed premises for exportation on the basis of an authority to deal with the goods provided by Customs and this authority is taken as a permission to move the goods from an excise licensed place to a place prescribed under the Customs Act 1901. The excisable goods pass out of the CEO's control upon delivery of the goods to the Customs licensed premises. Accordingly, the Australian Taxation Office (ATO) is unable to apply the usual compliance and revenue protection measures to the movement of these goods that it may apply to all other movement of excisable goods. The current arrangement dates back to the time when Customs administered both Customs and Excise legislation. With the separation of these functions it is necessary to update the provisions to ensure adequate compliance arrangements.

1.5 The diversion of excisable goods from export, particularly tobacco products, is considered to be high risk. There have been instances where excisable goods for export have not reached, or been diverted from within, the place of export. In other cases, the goods have not reached their overseas destination and it is unclear where they have been diverted. Containers have been found empty or not to contain the goods as described. However, as the goods are excisable, not customable, the provision for recovery of duty equivalent, available for goods under the control of Customs, cannot be applied.

1.6 The amendments enable the Collector to permit delivery of excisable goods for exportation, and require movement in accordance with permission conditions and satisfactory accounting for the goods upon request.

Summary of new law

1.7 Movement for exportation of excisable goods on which duty has not been paid will come under the provisions requiring movement permission from the Collector. New subsections 61A(2A) and (2B) specify that the Collector may give permission to deliver excisable goods for exportation. [Schedule 1, item 8]

1.8 Where a person has been entrusted with excisable goods that have been delivered for exportation under a permission from the Collector and fails to keep the goods safely or, when requested by the Collector, does not account satisfactorily for the goods, including their exportation, the Collector may demand payment of an excise equivalent amount as if the goods had been entered into home consumption on the day of the demand. [Schedule 1, item 5]

Comparison of key features of new law and current law

Detailed explanation of new law

1.9 The amendments repeal section 61AB that treats an authority to deal with excisable goods for export under the Customs Act 1901 as a permission to deliver the goods for exportation. [Schedule 1, item 7]

1.10 Movement of excisable goods for exportation will then require a Collector's permission under section 61A of the Excise Act 1901, which currently applies to movement of excisable goods under the CEO's control. New subsections 61A(2A) and (2B) insert provisions that the Collector may give permission on a one-off or ongoing basis to deliver excisable goods subject to the CEO's control for exportation and the permission is the delivery authority. [Schedule 1, item 8]

1.11 New subsection 60(1C) enables a Collector to make a written demand to a person who is entrusted with possession, custody or control of excisable goods on which duty has not been paid and which have been delivered for exportation under a permission, who fails to keep the goods safely or, when requested by the Collector, does not satisfy the Collector that the goods have been exported or does not otherwise satisfactorily account for the goods. [Schedule 1, item 5]

1.12 New subsection 60(1D) provides that, for the purposes of establishing exportation of the goods, evidence of delivery for export does not constitute evidence that the goods have been exported. [Schedule 1, item 5]

1.13 Minor consequential amendments delete reference to section 61AB from the note in section 16, include reference to subsection 60(1C) in subsection 60(2) and include reference to subsection 61A(2A) or (2B) in subsection 61A(3). [Schedule 1, items 4, 6 and 9]

Application and transitional provisions

1.14 Schedule 1, items 1 to 4, are taken to commence on Proclamation or, if the provisions do not commence within six months from the date this bill receives Royal Assent, on the first day after the end of that period.

Consequential amendments

1.15 The amendments repeal paragraph 114D(2)(b) of the Customs Act 1901. This paragraph provided an authority for the return of excisable goods, upon withdrawal of an export entry, to the place from which they were first delivered under the Customs entry as if by a section 61A (of the Excise Act 1901) permission. The effect of the amendments is that where an export entry is withdrawn excisable goods must be returned to an excise licensed place in accordance with the terms of a movement permission under the Excise Act 1901. [Schedule 1, items 1 and 2]

1.16 A minor technical correction renumbers subsections 114D(3) and (4) of the Customs Legislation Amendment and Repeal (International Trade Modernisation) Act 2001 as subsections (2) and (3) if the Customs Legislation Amendment and Repeal (International Trade Modernisation) Act 2001 commences before or at the same time as these provisions. [Schedule 1, item 3]

Chapter 2 - Movement of tobacco seed, plant and leaf

Outline of chapter

2.1 This chapter explains amendments to the Excise Act 1901 that include tobacco seed and plant in provisions requiring the Commissioner of Taxation's (Collector's) permission for movement of tobacco leaf; and provide for an offence and penalties where tobacco seed, plant and leaf, delivered for exportation, is not moved within a specified period in accordance with a permission.

Context of amendments

2.2 Tobacco manufactured as specified in the Excise Tariff Act 1921 is an excisable good and is dealt with in the excise legislation under the arrangements applying to excisable goods. However, the illicit trade in tobacco is a major revenue risk and, while unprocessed tobacco seed, plant and leaf are not excisable, the Excise Act 1901 provides considerable controls on their production, dealing and storage, which must be carried out under an excise licence. The Excise Act 1901 requires permissions for movement of tobacco leaf and applies substantial penalties, including imprisonment, for offences of unauthorised movement of tobacco leaf and unlawful buying, selling and possession of tobacco seed, plant and leaf.

2.3 There is considerable revenue risk around illegal dealings with tobacco seed, plant and leaf and there is an increased potential revenue loss around tobacco seed, plant and leaf delivered for exportation.

2.4 As a broad indication of the potential revenue loss, a tobacco plant can produce about two kilograms of cured tobacco leaf. About 30 grams of tobacco seed, which is similar to grains of fine pepper, may produce 50,000 to 100,000 plants. As excise duty on tobacco is currently $277.55 a kilogram, the potential revenue loss is considerable.

Summary of new law

2.5 The amendments insert tobacco seed and plant in the section 44 requirements that movement of tobacco leaf may only occur with the permission of the Collector. [Schedule 2, item 1]

2.6 Offence and penalty provisions are inserted for failure to return tobacco seed, plant and leaf, that has not been exported within a specified period, to an excise licensed place in accordance with a permission. [Schedule 2, item 4]

Comparison of key features of new law and current law

Detailed explanation of new law

2.7 The amendments include tobacco seed and plant in the subsection 44(1) provision that the movement of tobacco leaf may only occur with the permission of the Collector. The penalty provisions for unauthorised movement of tobacco leaf or contravention of permission conditions are amended to apply the appropriate part of the penalty - two years imprisonment or 500 penalty units - to tobacco seed and plant. [Schedule 2, items 1 and 3]

2.8 New subsection 44(8) adds a provision making it an offence where a person has permission to deliver tobacco seed, plant or leaf for export; and the tobacco seed, plant or leaf is not exported within 30 days (or other period specified in the permission) after the day of delivery; and the person fails to return the seed, plant or leaf to a place specified in a permission for its return within five days after the end of the 30 day or other specified period. [Schedule 2, item 4]

2.9 New subsection 44(9) specifies that this provision will not apply if the goods were destroyed before the end of the 30 days or other period specified in the permission. [Schedule 2, item 4]

2.10 For the offence in subsection 44(8), if the permission relates to tobacco seed or plant, the penalty is two years imprisonment or 500 penalty units; and if the permission relates to tobacco leaf - two years imprisonment or the greater of 500 penalty units and five times the amount of duty worked out under the Excise Regulations, being the duty that would be payable if the tobacco leaf had been manufactured into excisable goods and entered for home consumption on the penalty day. These penalties are consistent with existing penalties in the Excise Act 1901 for unlawful movement, possession, buying or selling of tobacco seed, plant or leaf. [Schedule 2, item 3]

2.11 Additional amendments to offence and forfeited goods provisions as a result of the inclusion of tobacco seed and plant:

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include tobacco seed and plant under paragraph 116(1)(ba) that makes tobacco leaf that has been moved without permission under section 44 a forfeited good [Schedule 2, item 5] ;

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add to section 44 a provision that if, before the tobacco seed, plant or leaf was moved, a person to whom permission has been given under this section intentionally acts or fails to act knowing, or being reckless as to whether, the act or omission contravenes a requirement specified in the permission, then, for the purposes of paragraph 116(1)(ba), the movement of the tobacco seed, plant or leaf is taken not to have been with permission [Schedule 2, item 4] ;

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extend the current offence provisions for unlawful movement of tobacco leaf to include tobacco seed and plant (subsection 117D(1)) and apply in relation to tobacco seed and plant the penalty for unauthorised movement of tobacco leaf or contravention of permission conditions, two years imprisonment or 500 penalty units; and extend the strict liability provision in subsection 117D(2) for movement of tobacco leaf without permission to include tobacco seed and plant [Schedule 2, items 7 to 9] ; and

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effect a minor amendment to limit the provisions in subsection 44(3) with respect to the labelling of bales to tobacco leaf [Schedule 2, item 2].

Application and transitional provisions

2.12 Schedule 2 commences on the day after this bill receives Royal Assent.

Chapter 3 - Immediate disposal of seized goods

Outline of chapter

3.1 This chapter explains amendments to the Excise Act 1901 that alter the criteria enabling the immediate disposal of seized forfeited goods, and provides for retention of samples, and for the use of evidentiary certificates relating to those goods in prosecutions and certain other proceedings. [Schedule 3, items 1, 3 and 4]

3.2 The amendments provide owners of destroyed goods with the right to recover the market value of the disposed goods (valued as at the time of disposal) upon proof that the grounds for disposal did not exist. [Schedule 3, item 2]

Context of amendments

3.3 The Excise Act 1901 enables the Commissioner of Taxation (CEO) to deal in a manner considered appropriate, including destruction of the goods, with goods seized under warrant or under section 9 of the Crimes Act 1914 if the goods are perishable and constitute a danger to public health. However, in most cases seized excisable goods or tobacco seed, plant or leaf do not satisfy both the perishable and danger to public health criteria.

3.4 Seized forfeited goods may constitute a public health risk only if returned to the owner or the market, or they may only be perishable without special storage arrangements. For example, tobacco is highly perishable but can be preserved with special storage arrangements. Goods may be neither a risk to public health nor perishable but cannot be returned to the market as they do not meet applicable quality standards. For example, alcohol extended with other products or illegally blended petroleum that would not meet the relevant food or fuel standards respectively do not meet the current criteria for immediate destruction. Such goods are generally not perishable and whether or not they are a danger to public health depends on the constituents. However, they cannot be appropriately returned to the market.

Summary of new law

3.5 The provisions for immediate destruction are altered to provide for immediate destruction where the goods are perishable, or do not meet any applicable quality standard or the goods, if made available to the public, would constitute a risk to public health or public safety. [Schedule 3, item 1]

3.6 Where the goods are destroyed, provision is made for sampling and recording of goods, appointment of an analyst and use of evidentiary and analyst's certificates in proceedings. [Schedule 3, item 4]

3.7 An owner has a right to recovery of the market value of the destroyed goods where a court is satisfied that the grounds on which the goods were destroyed did not exist. [Schedule 3, item 2]

Comparison of key features of new law and current law

Detailed explanation of new law

3.8 Subsection 107FJ(1) of the Excise Act 1901 currently allows immediate disposal of seized excisable goods (goods seized under a seizure warrant or section 9 of the Crimes Act 1914) only where the goods are perishable goods and the CEO is satisfied the retention of the goods would constitute a danger to public health.

3.9 New subsection 107FJ(1) enables the CEO to immediately dispose of goods seized under a seizure warrant or under section 9 of the Crimes Act 1914 where the goods are perishable; or the CEO is satisfied the goods do not meet a standard that applies to goods of that kind; or the CEO is satisfied there is a reasonable likelihood that the goods, if made available to the public, would constitute a risk to public health or public safety. [Schedule 3, item 1]

3.10 'Perishable goods' is defined in new subsection 107FJ(8) to include goods that will perish unless treated with chemicals to preserve them or stored in special conditions (e.g. refrigeration). [Schedule 3, item 3]

3.11 The amendments provide for the retention of a sample and written record of goods destroyed, appointment of an analyst and the use of analyst's and evidentiary certificates in proceedings involving the destroyed goods.

3.12 New section 107GB requires the CEO to ensure a sample of the goods destroyed is taken and dealt with in the manner set out under subsection 107GB(2), that is: divided into three equal parts, each marked and securely sealed, retention of two parts, one for examination by an analyst, the second for further examination if necessary, and retention of one part for delivery for further examination by a suitably qualified appointed person should an owner request such further examination. Subsection 107GB(3) requires a sample or written record to be kept for the longer of three years or the completion of the relevant proceedings.

3.13 The CEO, under new section 107GC, may appoint an officer or other suitably qualified person to be an analyst for the purposes of the Excise Act 1901. New subsection 107GD(4) provides that evidentiary certificates and analyst's certificates constitute prima facie evidence, in proceedings relating to the disposed goods, of the matters stated in the certificates. New subsection 107GD(2) provides that evidentiary certificates may be signed by an officer and state details as to the licence, permission or authority of a person or premises. Analyst's certificates, under new subsection 107GD(3), signed by an appointed analyst, may set out the nature of the sample examined (including identification, packaging and description of it) and the nature of analysis undertaken (when the sample was analysed, the method and results). New subsection 107GD(5) provides that a copy of a certificate must be provided to the defendant at least 14 days prior to its intended admission as evidence in proceedings and the defendant may request the person who signed the certificate to give evidence.

3.14 New subsections 107GD(6) and (7) provide for the person giving the certificate to be called to give evidence with four days notice of intention from the prosecution or by a court order. [Schedule 3, item 4]

3.15 Substitute paragraph 107FJ(6)(c) provides owners of the destroyed goods with a right to recover the market value of the goods calculated as at the time of their destruction where the owner has satisfied the court the grounds upon which disposal occurred did not exist at the time the goods were dealt with. [Schedule 3, item 2]

Application and transitional provisions

3.16 Schedule 3 commences on the day after this bill receives Royal Assent.

Chapter 4 - Providing licensing information

Outline of chapter

4.1 This chapter explains an amendment to the Excise Act 1901 that enables information about licences, permissions and remission arrangements to be made available to a second person where disclosure is considered necessary to ensure compliance with the requirements of the Act. [Schedule 4, items 1 to 3]

Context of amendments

4.2 The Excise Act 1901 has a comprehensive licensing system for the production of, and dealing in, tobacco and the manufacture and storing of excisable goods generally and provides for licences to be suspended or cancelled under certain circumstances. In addition, there are controls, through permission requirements and offences for contravening these requirements, over the movement and possession of tobacco seed, plant and leaf and other excisable goods. Licences or permissions may be subject to certain conditions such as restriction to specified quantities of goods.

4.3 The excise legislation confidentiality provisions prevent the Australian Taxation Office (ATO) from disclosing information about excise licences and permissions to a second person also dealing with the goods under the excise legislation.

4.4 Information on whether a person is licensed or has a permission to deal with particular goods or quantities of goods is at times a prerequisite for a second person to comply with the provisions of the legislation. The problem is illustrated in the illicit trade in tobacco, which poses a significant risk to the revenue base. It is an offence for a person to buy tobacco seed, leaf or plant from an unlicensed producer, manufacturer or dealer. However, the ATO is unable to provide information about licence status and conditions. Therefore, a tobacco cooperative with a dealer's licence cannot be advised whether a member is licensed as a producer or when a member's licence is cancelled or suspended. A tobacco grower cannot be informed if the company to which tobacco is to be sold is licensed.

4.5 Where a licence is cancelled, it may be necessary to amend or cancel permissions held by suppliers for the movement of goods to the persons whose licence has been cancelled. Currently, the ATO cannot give the permission holder information relating to the cancelled licence despite the fact it will need to amend or cancel the permission.

4.6 There are also disclosure issues around remission certificates, which are administrative documents stating that the holder may obtain quantities of excisable goods from a supplier according to conditions set out in a regulation. These conditions normally allow the holder to obtain goods at concessional or duty free rates, for example, alcohol for industrial purposes. A supplier to a remission certificate holder may need to be informed that a remission certificate has been amended or cancelled.

Summary of new law

4.7 The amendment alters the confidentiality provisions in section 159 to allow information relating to licences, permissions and remissions arrangements to be disclosed to a second person where the disclosure is considered necessary to ensure compliance with the excise legislation.

Comparison of key features of new law and current law

Detailed explanation of new law

4.8 New subsection 159(3A) enables the Commissioner or Deputy Commissioner (or person authorised by Commissioner or Deputy Commissioner) to disclose protected information about whether a person holds a licence under the Excise Act 1901 and the details and conditions of the licence, has a permission under that Act to move goods and details and conditions of such permission, or is allowed a remission of excise duty in relation to a class of goods and details and conditions of the remission.

4.9 Disclosure is permitted to a second person dealing, or proposing to deal, with the goods that may be covered by a licence, permission or remission arrangements where the entrusted person forms the opinion that the disclosure is necessary to ensure the dealing, or proposed dealing, is in accordance with the legislation.

4.10 A reference to a person is taken to include a reference to an unincorporated association or other body. [Schedule 4, item 2]

Application and transitional provisions

4.11 Schedule 4 commences on the day after the bill receives Royal Assent.

Index

Schedule 1: Delivery of goods for export

Schedule 2: Movement of tobacco seed, plant and leaf

Schedule 3: Immediate disposal of seized goods

Schedule 4: Providing licensing information