Explanatory Statement

Issued by the authority of the Minister for Customs and Consumer Affairs

Explanatory Statement

Excise Act 1901

Excise Regulations (Amendment)

Section 164 of the Excise Act 1901 (the Act) provides that the Governor-General may make regulations not inconsistent with the Act prescribing all matters which by the Act are required or permitted to be prescribed for giving effect to the Act or as may be necessary or convenient to be prescribed for giving effect to the Act or for the conduct of any business relating to the Excise.

Fuel Substitution Package

During the 1997 Spring sittings, Parliament passed the Government's fuel substitution legislation, a package of 9 Acts which implements the Government's Budget decision to combat revenue loss through the minimisation of fuel substitution practices. These practices involve the substitution of fuel entered at concessional rates of duty (generally for nonautomotive use) for fuel used in automotive engines. Such substitution practices are harmful to the engines of the (usually unwitting) motorist concerned, and cause significant revenue leakage in respect of the duty avoided on the substituted fuel.

The legislation package addresses the problem by providing for the introduction of a chemical marker into concessionally entered fuel, and imposing document keeping and retention obligations, audit powers and sanctions in relation to the acquisition, storage and disposal of fuel. Importantly, these measures are directed at those dealing in large volumes of fuel, and it is intended that the average motorist be exempted from these obligations in the normal course of dealing.

Supporting Regulations

Supporting Regulations are required to:

•

amend the Excise Regulations to prescribe the chemical marker and the proportions which are to be added to fuels.'

•

enact the Fuel (Penalty Surcharges) Administration Regulations to prescribe the record keeping particulars and to exempt the "average motorist" from the document keeping and retention obligations and audit provisions in the package;

•

amend the Customs (Prohibited Imports) Regulations to prohibit the importation of fuel that is not appropriately marked;

•

amend the Excise Regulations and the Customs Regulations to allow concessions in relation to certain uses of fully duty paid fuels (such as their use as solvents, which are nonfuel uses) ; and

•

make consequential amendments to the Customs Regulations and Excise Regulations to take account of revised structures of Customs and Excise tariff headings which apply to petroleum products to incorporate the introduction of the chemical marker.

The purpose of these Regulations is to amend the Excise Regulations to:

1.

prescribe the chemical marker and the proportion in which it is to be added to concessional fuels (new regulations 249 and 250, regulation 9 refers). The chemical marker will be added to fuels prior to their entry for home consumption and will indicate that a concessional rate of duty has been paid on that fuel. The chemical marker will be colourless and its presence in the fuel will be easily detected by a simple test;

2.

insert new circumstances for the remission and refund of excise duty for the use of certain fully duty paid fuels in the generation of electricity and as solvents (new subregulations 50(ze), (zf), (zg), (zh), (zi) and (zj), subregulation 3.7 refers); and

3.

update cross-references in the Excise Regulations to the classifications of petroleum products under item 11 of the Schedule to the Excise Tariff Act 1921 as a result of the new structure of item 11.

As a result of the changes to the provisions relating to the blending of petroleum products, technical amendments have also been made the exemptions from the blending regime (regulation 8 refers).

The regulations are explained in greater detail in the Attachment.

The Regulations commence on 31 January 1998, which is the date on which the fuel substitution legislation package has been proclaimed to commence.

Regulation 1 - Commencement

This regulation provides that these Regulations commence on 31 January 1998. This is the date that the Excise Tariff (Fuel Rates Amendments) Act 1997 was proclaimed to commence.

Regulation 2 - Amendment

This regulations provides that the Excise Regulations are amended as set out in these Regulations.

Regulation 3 - Regulation 50 (Circumstances under which remissions, rebates and refund are made)

Section 78 of the Excise Act 1901 (the Excise Act) provides that remission, rebate and refunds of excise duty may be allowed in respect of excisable goods in such circumstances and subject to such conditions and restrictions as are prescribed. Regulation 50 of the Excise Regulations prescribes the circumstances in which remission, rebates and refunds of excise duty may be allowed for the purposes of section 78. Section 78 also provides that the amount or the means of determining the amount of the remission, rebate or refund may also be prescribed.

Subregulation 3.1 amends paragraph 50(1)(r) by omitting "subitem 11(D)" and substituting "subitem 11(A)". This is a technical amendment only to update the cross reference to the classification of a petroleum product under item 11 of the Schedule to the Excise Tariff Act 1921 (the Tariff Act) as a result of the new structure of item 11.

Subregulation 3.2 amends paragraph 50(1)(w) by omitting " subitem (E)(2) of item 11 and substituting "subparagraph 11(C)(1)(a) or 11(C)(2)a)". This is a technical amendment only to update the cross reference to the classification of a petroleum product under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 3.3 amends paragraph 50(1)(y) by omitting "paragraph 11(E)(2) and substituting "subparagraph 11(C)(1)(a) or 11(C)(2)(a)". This is a technical amendment only to update the cross reference to the classification of a petroleum product under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 3.4 amends paragraph 50(1)(z) by omitting "paragraph 11(E)(2)" and substituting "subparagraph 11(C)(1)(a) or 11(C)(2)(a)". This is a technical amendment only to update the cross reference to the classification of a petroleum product under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulations 3.5 and 3.6 amend subregulation 50(1) by omitting paragraphs 50(1)(za) and 50(1)(zb). These paragraphs previously contained a remission and a refund circumstance for topped crude petroleum where it was for use, or was used, as a fuel otherwise than in an internal combustion engine. The amount of the remission or rebate was worked out under regulation 52H and it was the difference between the full excise duty rate and the concessional excise duty rate.

Under the new structure of item 11 of the Schedule, it is possible to enter topped crude petroleum oil for home consumption under new subitem 11(G) of the Schedule to the Tariff Act at the concessional rate of duty where it contains the prescribed proportion of the chemical marker. Therefore, there was no continuing need for the remission and refund circumstance in paragraphs 50(1)(za) and (zb) and they have been deleted.

Subregulation 3.7 amends subregulation 50(1) by inserting new paragraphs (ze), (zf), (zg), (zh), (zi) and (zj).

New paragraph 50(1)(ze) inserts the new remission with respect to recycled petroleum products which are for use, as a blend with diesel fuel, in diesel engines to generate electricity in certain circumstances. The circumstances are that the engine must be operating at less than 1000 revolutions per minute at constant speed in a stand alone power station that is not connected to an electricity transmission grid and generating in excess of 5.5 megawatts of electricity for supply to the general public.

Recycled waste oil is blended with diesel fuel where the blend is then used in remote power stations to generate electricity. Up to 11 million litres of recycled waste are blended in this manner each year. Under the previous structure of item 11 of the Schedule to the Tariff Act, recycled petroleum products, including recycled waste oil, were not subject to the excise regime so its blending with diesel fuel involved no additional cost.

As part of the fuel substitution reforms, however, recycled petroleum products have become subject to excise under new subitem 11 (1) of the Schedule and are dutiable according to the intended end use of the products. In relation to the above use of the blend of recycled waste oil and diesel fuel, the waste oil is dutiable at the highest rate because it is for use in an internal combustion engine. If a concessional rate of excise duty is to be payable on the recycled waste oil, it now requires the addition of the chemical marker and cannot be blended with the diesel fuel. Under these circumstances, the incentive for the power station operators to purchase the recycled waste oil has disappeared.

The new remission circumstance has been inserted to preserve the previous use of the recycled waste oil in the above circumstances. This circumstance contains a sunset clause, such that the recycled waste oil must be delivered for before 1 January 2006.

New paragraph 500)(zf) complements new paragraph 50(1)(ze) and inserts the new refund circumstance with respect to recycled petroleum products which have been fully duty paid and which have been used, as a blend with diesel fuel, in diesel engines to generate electricity in the same circumstances as under paragraph 50(1)(ze). This refund circumstance has been inserted for the same reasons as the new remission circumstance under paragraph 50(1)(ze) and contains the same sunset clause as paragraph 50(1)(ze).

New paragraph 50(1)(zg) inserts a new remission circumstance for petroleum products which do not contain the chemical marker, and are therefore dutiable at the highest rate, but which are delivered for use as solvents.

Under the new structure of item 11 of the Schedule to the Tariff Act, petroleum products which are intended for non-fuel use will be dutiable at the rate of "Free". In order to be eligible for the "Free" rate of duty, the petroleum products are to contain the chemical marker. However, some of the non-fuel applications of petroleum products include their use as solvents in the production of foodstuffs such as margarine and in the manufacture of paints. Where a petroleum product is used as a solvent in these circumstances, it is considered inappropriate on health and efficiency grounds that the petroleum product contains the chemical marker.

A remission circumstance has been inserted to apply to petroleum products which are clean fuels and which are suitable for use as a fuel in an internal combustion engine but which are delivered for use otherwise than as a fuel and as a solvent. Clean fuels are fuels which do not contain the chemical marker and are, therefore, dutiable at the highest rate. The fuels must be delivered in accordance with a permission under section 61C of the Excise Act, which must be expressed to be given for the purposes of ensuring the efficacy of the fuel as a solvent.

New paragraph 50(1)(zh) complements new paragraph 50(1)(zg) and inserts the new refund circumstance with respect to clean fuels which have been used as a solvent only. As previously stated, clean fuels are fuels which are dutiable at the highest rate. Under this new refund circumstance, where a clean fuel has been fully duty paid and is then used as a solvent only ie, a non-fuel use, there will be an entitlement to a refund of the duty paid.

New paragraph 50(1)(zi) inserts a new remission circumstance in relation to certain fully duty paid fuels which are for use in gas turbines engines to generate electricity.

Gas turbine engines, which are internal combustion engines, are used in power stations to generate mainly peak load electricity. Products such a lighting kerosene and heating oil which are currently dutiable at the concessional rate of 7.2 cents per litre are used in these turbines. Under the new structure of item 11, however, these products will become dutiable at the highest rate because they will be for use in an internal combustion engine. If a concessional rate of excise duty is to be payable on these products, they will require the addition of the chemical marker and could not be then used in the internal combustion engine.

The previous concession in relation to the use of these products in the gas turbine engines has been maintained by the creation of a new remission circumstance in paragraph 50(1)(zi). This circumstance contains a sunset clause, such that the relevant petroleum products must be delivered for before 1 January 2006.

New paragraph 50(1)(zi) complements new paragraph 50(1)(zi) and inserts the new refund circumstance with respect to certain fuels which have been fully duty paid and which have been used in a gas turbine engine to generate electricity. This refund circumstance has been inserted for the same reasons as the new remission circumstance under paragraph 50(1)(zi) and contains the same sunset clause as paragraph 50(1)(zi).

Regulation 4 - Regulation 52G (Amount of remission, rebate or refund in respect of certain petroleum products)

Subregulation 4.1 amends subregulation 52G(1) by omitting the reference to "paragraph 11(E)(2)" and substituting " 11(C)(2)(a)".

Subregulation 4.2 amends subregulation 52G(1) by omitting the reference to "paragraph 11(E)(3)" and substituting "11(B)(2)(b)".

These are technical amendments only to update the cross references to the classification of petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Regulation 5 - New regulation 52GA

This regulation inserts new regulation 52GA

New subregulation 52GA(1) contains the formula for calculating the amount or remission, rebate or refund of excise duty in the circumstances prescribed in new paragraphs 50(1)(zi) and (zj) ie, in respect of certain fuels for use or used in generating electricity.

The result of the formula is that where the fuels are for use or used in generating electricity, the effective rate of excise duty that is payable remains the concessional rate of duty, currently 7.2 cents per litre.

New subregulation 52GA(2) specifies the relevant date of the application of the primary and secondary rates for the purpose of calculating any rebate or refund in accordance with subregulation 52GA(1). The calculation of the rebate or refund is to be based on these rate applicable on the date the relevant fuel is entered for home consumption.

In the circumstances of a rebate or refund, however, the date of entry for home consumption may not be known by the person who is applying for the rebate or refund. Therefore, paragraph 52GA(2)(b) provides that is this date is not known, the primary and secondary rates are those applicable on the date on which the fuel was purchased by the applicant.

Regulation 6 - Regulation 52H (Amount of remission, rebate or refund in respect of topped crude petroleum oil)

This regulation omits regulation 52H.

Regulation 52H set out the formula for calculating the amount or remission, rebate or refund of excise duty in the circumstances prescribed in paragraphs 50(1)(za) and (zb) ie, in respect of topped crude petroleum oil for use, or used, as a fuel otherwise than in an internal combustion engine. As paragraphs 50(1)(za) and (zb) have been omitted (subregulations 3.5 and 3.6 above refer), this formula is no longer required and has been omitted.

Regulation 7 - Regulation 52J (Amount of remission, rebate or refund in respect of diesel fuel manufactured by refining waste oils)

This regulation amends regulation 52J by omitting the reference to "paragraph 11(E)(2)" and substituting "11 (C)(2)(a)".

This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Proposed regulation 8 - Regulation 176 (Exempt blended petroleum products)

Item 12 of the Schedule to the Tariff Act imposes excise duty on excisable blended petroleum products and section 6G of the Tariff Act governs the rate of duty that applies to such blends. The provisions of section 77G of the Excise Act determine what is an excisable blended petroleum product for the purposes of item 12.

Under the new regime to minimise fuel substitution practices, the blending of petroleum products which contain the chemical marker (concessional fuels) with petroleum products which do not contain the chemical marker (fully duty paid fuels) have become subject to the imposition of a penalty surcharge under the Fuel Blending (Penalty Surcharge) Act 1997. These blends are no longer covered by item 12 and 77G. However, aspects of the current blending legislation have been retained in order to:

(a)

permit the blending under licence of products which will not be required to contain a chemical marker under the new legislation ("clean petroleum products"); and

(b)

control the blending under licence of certain of the fuels which will be required to contain a chemical marker under the new legislation.

Section 77J provides that the regulations may specify that an excisable blended petroleum product is an exempt blended petroleum product and therefore not excisable under item 12 of the Schedule to the Tariff Act. Such blends are included in regulation 176 of the Excise Regulations.

As a consequence of the proposed penalty surcharge on blending, and the narrowing of g the blending provisions outlined above, many of the circumstances in regulation section 176 became redundant. Regulation 176 has been amended to delete the redundant provisions and to also make technical amendments to this regulation.

Regulation 8.1 amends regulation 176 by omitting subregulation 176(1). This subregulation set out the definition of "waste oil" for the purposes of paragraphs 176(2)(a) to (e). These paragraphs have been omitted (subregulation 8.3 below refers) and, therefore, this subregulation and definition has also been omitted.

Subregulation 8.2 amends subregulation 176(2) by omitting the reference to "paragraph" 77J(1)(b)" and substituting "section 77J". This is a technical amendment only to correct the cross reference to section 77J of the Excise Act in this subregulation.

Subregulation 8.3 amends regulation 176(2) by omitting paragraphs 176(2)(a), (b), (c), (d) and (e).

These paragraphs previously prescribed as exempt blended petroleum products blends of waste oil and certain fully duty paid petroleum products. Under the penalty surcharge on blending, and the narrowing of the blending provisions outlined above, these exempt blends became redundant under regulation 176. They have become subject to the penalty surcharge and have been omitted as exempt blends from regulation 176.

Subregulation 8.4 amends paragraph 176(2)(f) by omitting "subparagraph 11(A)(3)(b) or (c)" and substituting "subparagraph 11(H)(2)(b) or (c)". This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 8.5 amends paragraph 176(2)(g) by inserting the word "clean" before the two occurrences of "petroleum product". This is a technical amendment only as a consequence of the narrowing of the blending legislation under the Excise Act, and its exemptions, to clean petroleum products.

Subregulation 8.6 amends paragraph 176(2)(h) by omitting " subparagraph 11(A)(3)(b) or (c)" and substituting "subparagraph 11(H)(2)(b) or (c)". This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 8.7 amends paragraph 176(2)(i) by inserting the word "clean" before the two occurrences of "petroleum product". This is a technical amendment only as a consequence of the narrowing of the blending legislation under the Excise Act, and its exemptions, to clean petroleum products.

Subregulation 8. 8 amends paragraph 176(2)(i) by omitting "subparagraph 11(A)(3)(b) or (c), or paragraph 11(E)(2)" and substituting "subparagraph 11(H)(2)(b) or (c)", or subparagraph 11 (C)(2)(a). This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 8.9 amends paragraph 176(2)(j) by inserting the word "clean" before the two occurrences of "petroleum product". This is a technical amendment only as a consequence of the narrowing of the blending legislation under the Excise Act, and its exemptions, to clean petroleum products.

Subregulation 8.10 amends paragraph 176(2)(k) by inserting the word "clean" before the two occurrences of "petroleum product". This is a technical amendment only as a consequence of the narrowing of the blending legislation under the Excise Act, and its exemptions, to clean petroleum products.

Subregulation 8.11 amends paragraph 176(2)(1) by omitting "subparagraph 11(A)(3)(b) and (c)" and substituting "subparagraph 11(H)(2)(b) and (c)". This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 8.12 omitted and substituted paragraph 176(2)(m). This amendment restates that previous wording of this paragraph and inserted the word "clean" before the two occurrences of "petroleum product". These are technical amendments only as a consequence of the narrowing of the blending legislation under the Excise Act, and its exemptions, to clean petroleum products.

Subregulation 8.13 amends paragraph 176(2)(o) by omitting "paragraph 11 (E)(2)" and substituting "subparagraph "11(C)(2)(a)". This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 8.14 amends paragraph 176(2)(o) by omitting "subitem 11(H)" and substituting "subitem 11(F)". This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 8.15 amends subregulation 176(2) by omitting paragraphs (p), (q), (r) and (s). Similar to the omission of paragraphs (a) to (e) above, these paragraphs prescribed as exempt blended petroleum products blends which under the penalty surcharge on blending, and the narrowing of the blending provisions outlined above, have become redundant under regulation 176. They have been omitted as exempt blends from regulation 176.

Subregulation 8.16 amends paragraph 176(2)(t) by inserting the word "clean" before "petroleum products". This is a technical amendment only as a consequence of the narrowing of the blending legislation under the Excise Act, and its exemptions, to clean petroleum products.

Subregulation 8.17 amends paragraph 176(2)(t) by omitting "paragraph 11(A)(3)" and substituting "subparagraph 11(H)". This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 8.18 amends paragraph 176(2)(t) by omitting "paragraph 11(E)(2)" and substituting "subparagraph 11(C)(2)(a)". This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 8. 19 amends paragraph 176(2)(u) by inserting the word "clean" before "petroleum products". This is a technical amendment only as a consequence of the narrowing of the blending legislation under the Excise Act, and its exemptions, to clean petroleum products.

Subregulation 8.20 amends paragraph 176(2)(u) by omitting "paragraph 11(A)(3)" and substituting "subitem 11(H)". This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 8.21 amends paragraph 176(2)(u) by omitting " 11(A)(3)(b)" and substituting "11(H)(2)(b)". This is a technical amendment only to update the cross references to the classification of a petroleum products under item 11 of the Schedule to the Tariff Act as a result of the new structure of item 11.

Subregulation 8.22 amends subregulation 176(2) by inserting new paragraph 176(2)(v). This new paragraph inserts a new exempt blended petroleum product, being the blend of diesel fuel, which has been fully duty paid, and the blend of a recycled petroleum product. The blend must be for use in diesel engines operating at less than 1000 revolutions per minute at constant speed in a stand alone power station that is not connected to an electricity transmission grid and generating in excess of 5.5 megawatts of electricity for supply to the general public.

This new exempt blend complements the new remission circumstance for the recycled petroleum product under proposed new paragraph 50(1)(ze) (subregulation 3.7 above refers). This remission circumstance applies to the recycled product in this new exempt blend for use in the specified circumstances. As neither of the components of this blend will contain the chemical marker, the blend would otherwise be covered by the narrowed blending provisions referred to above so it is also proposed to exempt the blend itself from these provisions.

Regulation 9 - New regulations 249 and 250

This regulation inserts new regulations 249 and 250 into the Excise Regulations

Section 5C of the Tariff Act provides that regulations may be made for the purposes of the new structure of item 11 of the Schedule to the Tariff Act to prescribe the marker and the proportion of the marker that will be required to be added to certain petroleum products prior to their entry for home consumption.

New subregulation 249(1) provides that for item 11 of the Schedule to the Tariff Act, MORTRACE MP is prescribed as the chemical additive to be a fuel marker.

The marker MORTRACE MP was chosen following detailed deliberations and testing by the Government/Industry Technical Advisory Committee set up following the Government's Budget announcement. It is produced by Morton International, a leading US based manufacturer of these products. It is colourless in solution and its presence in fuel is easily detected by a simple test. Test kits will be readily available to carry out this test.

New subregulation 249(2) provides that for item 11 of the Schedule to the Tariff Act, the prescribed proportion is 20 milligrams of MORTRACE MP per litre of product in a subitem of that item.

The prescribed proportion of 20 milligrams of MORTRACE MP per litre was determined on the basis that it is the recommended dosage rate set by the manufacturer. This was confirmed in both field and laboratory tests conducted by the petroleum industry in Australia and by an independent consultant.

New regulation 250 provides that for paragraph 5D(b) of the Tariff Act, the prescribed threshold proportion is 1 milligram of MORTRACE MP per litre of a product in a subitem of item 11 of the Schedule to the Tariff Act.

Section 5D of the Tariff Act contains provisions for the purpose of clarifying the classification of products to subitems of item 11 to the Schedule to the Tariff Act. This section provides that a classification of products in a subitem of item 11 that is not described as containing at least the prescribed proportion of the chemical marker is to be interpreted as a classification applicable only to products that:

(a)

do not contain marker at all; or

(b)

contain the marker below the threshold prescribed for the purposes of the section by regulation.

The purpose of paragraph (b) is to accommodate the recycling of petroleum products which have already been entered into home consumption but which may contain traces of the original chemical marker. If this trace is below the prescribed threshold, these products will be treated the same way as products which contain no marker at all.

The threshold proportion of 1 milligram of MORTRACE MP per litre was determined following both field and laboratory tests by the petroleum industry in Australia and by an independent consultant.