House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP and the Minister for Home Affairs, the Hon Brendan O'Connor MP

General outline and financial impact

Increased tax on tobacco products

These two Bills amend the Excise Tariff Act 1921 and the Customs Tariff Act 1995 to increase the excise and excise-equivalent customs duty rate applying to tobacco, cigars, cigarettes and snuff by 25 per cent, from $0.26220 to $0.32775 per stick not exceeding in weight 0.8 grams per stick actual tobacco content, and from $327.77 to $409.71 per kilogram for other tobacco.

Date of effect: 30 April 2010.

Proposal announced: On 29 April 2010, excise and customs notices were published in the Commonwealth Government Special Notices Gazette No. S63 and No. S62, respectively.

Financial impact: This measure will have these revenue implications:

These revenue impacts do not include the following estimated increased goods and services tax collections:

Compliance cost impact: Minor transitional compliance and administration costs are expected from this rate change.

Chapter 1 - Increased tax on tobacco products

Outline of chapter

1.1 This chapter explains amendments to the respective Schedules of the Excise Tariff Act 1921 and the Customs Tariff Act 1995 to alter the excise and excise-equivalent customs duties applying to tobacco products.

Context of amendments

1.2 Excise is a tax on certain goods produced in Australia including alcohol (other than wine), tobacco and fuel. Imported goods comparable to those subject to excise, known as 'excise-equivalent goods', attract customs duty that includes a component at the same rate as the excise rate so that imports and locally-produced goods are taxed in an equivalent fashion. This component is commonly referred to as 'excise-equivalent customs duty'.

1.3 The Government increased the excise rate applying to 'tobacco, cigars, cigarettes and snuff', and the relevant excise-equivalent customs duty rates applying to the equivalent imported products by 25 per cent, applying on and from 30 April 2010. This equates to an increase from $0.26220 to $0.32775 for sticks of tobacco (for example, cigarettes or cigars) not exceeding 0.8 grams per stick actual tobacco content in weight, and from $327.77 to $409.71 per kilogram for other tobacco (for example, loose tobacco). The rates of excise and excise-equivalent customs duty on 'tobacco, cigars, cigarettes and snuff' are subject to indexation on a half-yearly basis and are adjusted in February and August each year.

1.4 These amendments increase the rate for item 5 of the Schedule to the Excise Tariff Act 1921 and the relevant rates in the Customs Tariff Act 1995.

Summary of new law

1.5 This measure changes the Schedule to the Excise Tariff Act 1921 to increase the rate in item 5.1 from $0.26220 to $0.32775 for sticks of tobacco not exceeding 0.8 grams of actual tobacco content in weight, and increase the rate in item 5.5 from $327.77 to $409.71 per kilogram for other tobacco. This measure also amends Schedule 3 to the Customs Tariff Act 1995 so that the rates in the Schedule accord with changes to the Schedule to the Excise Tariff Act 1921. It is noted that the rates for item 5 of the Schedule to the Excise Tariff Act 1921 and the excise-equivalent subheadings of Schedule 3 to the Customs Tariff Act 1995 are subject to indexation on a half yearly basis and are adjusted in February and August each year.

Comparison of key features of new law and current law

Detailed explanation of new law

1.6 'Tobacco, cigars, cigarettes and snuff' are classified in item 5 of the Schedule to the Excise Tariff Act 1921. Tobacco is defined in the Schedule to the Excise Tariff Act 1921 as 'tobacco leaf subjected to any process other than curing the leaf as stripped from the plant'.

1.7 Imported tobacco products and manufactured tobacco substitutes are classified under several subheadings in Schedule 3 to the Customs Tariff Act 1995. The subheadings that receive equivalent tax treatment to item 5 of the Schedule to the Excise Tariff Act 1921 are: 2401.10.00, 2401.20.00, 2401.30.00, 2402.10.20, 2402.10.80, 2402.20.20, 2402.20.80, 2403.10.30, 2403.10.70, 2403.91.00 and 2403.99.80.

1.8 Additionally, Schedules 5, 6, 7 and 8 to the Customs Tariff Act 1995 specify rates of duty for certain goods, including tobacco products, imported under the Australia-US Free Trade Agreement, the Thai-Australia Free Trade Agreement, the Australia-Chile Free Trade Agreement and the ASEAN-Australia-New Zealand Free Trade Agreement, respectively. The Bill amends the relevant items in these Schedules so that the increased rates of duty apply to the above tobacco products when imported under these Free Trade Agreements.

1.9 These Bills seek to legislate the increased rates of tobacco excise and excise-equivalent customs duty.

1.10 The amendments set out in the Excise Tariff Amendment (Tobacco) Bill 2010 alters the Schedule to the Excise Tariff Act 1921 to increase the rate applicable under item 5.1 from $0.26220 per stick to $0.32775 per stick, and the rate applicable under item 5.5 from $327.77 to $409.71 per kilogram for other tobacco . [Schedule 1, items 1 to 2 of the Excise Tariff Amendment (Tobacco) Bill 2010]

1.11 Additionally, Schedule 3 to the Customs Tariff Act 1995 is altered by the Customs Tariff Amendment (Tobacco) Bill 2010 so that the relevant rates of excise-equivalent customs duty accord with changes to the Schedule to the Excise Tariff Act 1921. [Schedule 1, items 1 to 11 of the Customs Tariff Amendment (Tobacco) Bill 2010]

1.12 The Bill also amends rates of duty for the items in Schedules 5, 6, 7 and 8 of the Customs Tariff Act 1995 that correspond to the above subheadings in Schedule 3. The amendments to the Customs Tariff Act 1995 ensure that the excise equivalent component of customs duty on imported 'tobacco, cigars, cigarettes and snuff' is the same as the rates of excise duty applicable to those goods when produced in Australia and will apply to goods when imported from all countries . [Schedule 1, items 12 to 55 of the Customs Tariff Amendment (Tobacco) Bill 2010]

Application and transitional provisions

1.13 In accordance with subsection 5(2) of the Excise Tariff Act 1921, these excise tariff amendments are taken to have commenced on 30 April 2010 . [Section 2 of the Excise Tariff Amendment (Tobacco) Bill 2010]

1.14 The amendments to the Customs Tariff Act 1995 are taken to have commenced on 30 April 2010. In addition, the amendments apply to goods entered for home consumption on or after 30 April 2010 and to goods that have been imported into Australia before that date where the time for working out the rate of import duty on the goods had not occurred before that date. For example, this application provision will apply to goods that were warehoused on importation before 30 April 2010 and not entered into home consumption until on or after that date . [Schedule 1, item 56 of the Customs Tariff Amendment (Tobacco) Bill 2010]