Excise guidelines for duty free shops

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Chapter 1 - Introduction

Purpose

This chapter deals with:

• what is excise
• an overview of excise legislation relevant to duty free shops
• who administers excise
• when you are involved in the excise system, and
• what you need to know before you set up a duty free shop.

It provides a general introduction to excise as it relates to duty free shops. Further detail on the matters discussed is contained in later chapters.

1.1 What is excise?

The Commonwealth of Australia Constitution Act (the Constitution) provides that only the Commonwealth can impose duties of excise. ^[1]

The Constitution also provides that laws imposing taxation (and excise is a tax) shall only deal with the imposition of tax. The Excise Tariff Act 1921 imposes excise on relevant goods manufactured or produced in Australia and the Excise Act 1901 deals with administrative arrangements applying to the excise system.

In Ha & Anor v. State Of New South Wales & Ors; Walter Hammond & Associates Pty Limited v. State Of New South Wales & Ors ^[2] ( Ha ), the High Court explained a duty of excise as follows:

... duties of excise are taxes on the production, manufacture, sale or distribution of goods, whether of foreign or domestic origin. Duties of excise are inland taxes in contradistinction from duties of customs which are taxes on the importation of goods. ^[3]

Excise imposed by the Excise Tariff Act 1921 is imposed on goods dutiable under the Schedule to that Act and manufactured or produced in Australia of specified goods. It can be seen that this clearly fits the definition of duty of excise as described by the High Court in the Ha case.

1.2 Overview of excise legislation

The principal legislative framework for the excise system is contained in the:

• Excise Tariff Act 1921 (Excise Tariff Act)
• Excise Act 1901 (Excise Act), and
• Excise Regulation 2015 (Excise Regulation).

To change the Excise Tariff Act requires an amending act to be passed through Parliament. There are parliamentary procedures which allow for the modification of the Excise Tariff Act so that the changes can be implemented immediately. These procedures are known as Tariff Proposals.

For more information on Tariff Proposals see Section 1.2.1 - Excise Tariff Act.

1.2.1 Excise Tariff Act

There are three key provisions in the Excise Tariff Act that operate to:

• impose excise duty
• identify excisable goods and the applicable duty rates (the Schedule), and
• index the duty rate.

Imposition of Excise Duty

Section 5 of the Excise Tariff Act imposes excise duty on goods that are listed in the Schedule to the Act and manufactured or produced in Australia. Excise duty is imposed at the time of manufacture or production of the relevant goods. The Schedule lists the various goods that are subject to excise and the rate of duty applicable. It is sometimes referred to as the Excise Tariff.

The schedule of excisable goods and the duty rates

The Schedule to the Excise Tariff Act is a table that lists the goods that are subject to excise duty (if those goods are manufactured or produced in Australia). The goods that are currently subject to excise fall within three broad groups:

• spirits and alcoholic beverages (other than wine)
• cigarettes and other tobacco goods, and
• fuel and oils.

Within those three broad groups the schedule provides eight different items and those items are (in most cases) further broken down into subitems. The table contains a description of the items and subitems and provides the rate of duty applicable to them.

The following is an extract from the alcohol products section of the table:

Tariff Item	Subitem	Description of Goods	Rate
2		Other excisable beverages not exceeding 10% by volume of alcohol	$88.91* per litre of alcohol
3		Spirits; Other excisable beverages exceeding 10% by volume of alcohol
	3.1	Brandy	$83.04* per litre of alcohol
	3.2	Other excisable beverages exceeding 10% by volume of alcohol	$88.91* per litre of alcohol
	3.10	Spirits not elsewhere included	$88.91* per litre of alcohol

*Rate of duty as at 2 August 2021, for the current rates of duty, refer to the tables on our website at:

Excise duty rates for alcohol | Australian Taxation Office (ato.gov.au)

Indexation of the duty rate

The rates of excise are set in the Schedule to the Excise Tariff Act. However, section 6A of the Excise Tariff Act provides that the rates of duty for spirits, alcoholic beverages and fuel may increase every six months (generally on 1 February and 1 August). The amount of any increase is calculated by reference to the All Groups Consumer Price Index published quarterly by the Australian Bureau of Statistics.

Similarly section 6AA of the Excise Tariff Act provides that the rates of duty for cigarettes and other tobacco goods may increase every six months (generally 1 March and 1 September) by reference to the estimate of the full-time adult Average Weekly Ordinary Time Earnings for persons in Australia (AWOTE amount). The AWOTE amount is published biannually by the Australian Bureau of Statistics.

These increases are commonly referred to as indexation. We publish these in the Commonwealth Gazette and, for ease of reference, we provide up to date duty rates on our webpages taking account of the indexation increases.

Indexation increases also apply to rates set under a tariff proposal.

Tariff proposals Tariff proposals are a means of changing the Excise Tariff (rates can be adjusted up or down; products can be added or removed) so that it is effective from the time it is proposed rather than after the enactment of an Excise Tariff Amendment Act. Most of the processes relate to Parliamentary procedures, however, there are specific provisions in the Excise Act that provide for the making of tariff proposals when Parliament is not sitting. Effectively changes to the Excise Tariff can be notified in the Parliament or, if the Parliament is not sitting, by notice in the Gazette. We then apply the proposal as if it is law. The tariff proposal is required to be validated by an Act within 12 months giving retrospective effect to the date of the proposal. You cannot commence proceedings against us for any action taken to collect the amount set by the tariff proposal during the periods specified in section 114 of the Excise Act. [4] Effectively this means you need to pay in line with a tariff proposal. Any increases in rates or introduction of new products through a tariff proposal technically does not impose excise but we will protect the revenue by collecting amounts in line with the proposal. If an amending Act validating the changes outlined within the tariff proposal is not passed within the prescribed periods, then any additional amounts will be refunded to you.

1.2.2 Excise Act

The Excise Act imposes controls in two main areas:

• manufacture, storage and movement of excisable goods, and
• payment of duty for excisable goods.

The Excise Act requires that excisable goods not be stored outside our control. This is to ensure that the correct amount of duty is ultimately paid or the excisable goods are otherwise satisfactorily dealt with. This is achieved by making various activities unlawful and allowing us to grant licences and permission to people to carry on those otherwise unlawful activities.

Manufacture, storage and movement of excisable goods

Before you can manufacture excisable goods, you need a manufacturer licence granted under the Excise Act. ^[5]

Before you can store excisable goods that you did not manufacture, you need a storage licence granted under the Excise Act. ^[6]

Before you can remove excisable goods on which duty has not been paid, you need permission granted under the Excise Act. ^[7]

Before you can sell excisable goods to relevant travellers , you need a permission granted under the Excise Act. ^[8]

	For more information about the excise licensing regime, refer to Chapter 2 - Licensing: Applications.
	For more information about movement permissions refer to Chapter 5 - Movement permissions.
	For more information about movement permissions refer to Chapter 6 - Making duty free sales: Outwards and Chapter 7 - Making duty free sales: Inwards.

Payment of duty for excisable goods

In general terms duty free shops will not pay duty. However, payment of duty will be required when excisable goods are not taken overseas or are unable to be accounted for (for example, stock shortages).

The Excise Act in conjunction with the Excise Regulation specifies when the duty must be paid, how and what you must report to us, the relevant time to determine the rate of duty in force, and provides a mechanism to require payment where duty has not been correctly accounted for on excisable goods.

For more information about payment of duty refer to Chapter 8 - Accounting for excisable goods.

1.2.3 Excise Regulation

The Excise Regulation set out provisions in relation to excisable goods such as:

• rules for duty free shops, and
• remissions .

	For more information about rules for duty free shops refer to Chapter 6 - Making duty free sales: Outwards and Chapter 7 - Making duty free sales: Inwards.
	For more information about remissions refer to Chapter 9 - Remissions and exemptions.

1.3 Who administers excise?

The Commissioner of Taxation has the general administration of the Excise Act and the Excise Tariff Act. ^[9] This means you have to deal with the Australian Taxation Office (ATO) for Australian manufactured spirits and beer.

As excise is only levied on products manufactured in Australia imported alcohol and tobacco goods are not subject to control by us. Customs duty, under the Customs Act 1901 (Customs Act) and Customs Tariff Act 1995 (Customs Tariff Act), is applied to imported alcohol and tobacco goods. The Australian Border Force (ABF) within the Department of Home Affairs is responsible for administration of the Customs Act and Customs Tariff Act.

	You must have a warehouse licence , under the Customs Act, before you will be granted a storage licence, with permission to sell duty free, under the Excise Act.
	Although cigarettes and other tobacco goods are listed in the Schedule to the Excise Tariff Act, there are currently no licensed manufacturers of tobacco in Australia. All legitimate tobacco goods are imported, subject to Customs duty and administered by the Department of Home Affairs.

Who you need to deal with is summarised in the following table:

	ABF	ATO
Australian manufactured alcohol products	No	Yes
Imported alcohol and tobacco goods	Yes	No

1.4 When am I involved in the excise system?

You are involved in the excise system if you:

• operate a duty free shop
• store or own excisable goods on which duty has not been paid, or
• manufacture excisable goods.

1.5 What do I need to know before I set up a duty free shop?

1.5.1 What is a duty free shop?

A duty free shop is licensed to store goods on which duty has not been paid and has a permission to sell those goods to relevant travellers.

Understanding who is a relevant traveller is fundamental to the operation of a duty free shop.

A relevant traveller is:

• a person who intends to make an international flight or international voyage , whether as a passenger on, or as a member of the crew, or the pilot or master of, an aircraft or ship ^[10] , or
• a person who has arrived in Australia on an international flight, whether as a passenger on, or as a member of the crew, or the pilot of, an aircraft and has not been questioned, for the purposes of the Customs Act, by an officer of Customs, in respect of goods carried on that flight. ^[11]

There are two types of duty free shops:

• outwards (off-airport and on-airport), and
• inwards (on-airport).

About Outwards off-airport duty free shops

Outwards off-airport duty free shops sell to relevant travellers who are departing from Australia. They can be located away from the airport or at the airport, but before the Customs processing point.

Duty free goods can only be sold to relevant travellers. Goods will be placed in a sealed bag ^[12] and a copy of the sales invoice is placed on the outside of the bag. ^[13] Relevant travellers must present any sealed bags for inspection, and removal of the outside invoice, by the proprietor of the duty free shop, or a servant or agent of the proprietor, either:

• when surrendering them, to airline or shipping staff, for carriage other than in the cabin of an aircraft or ship, or
• in the departure area. ^[14]

Duty free operators must ensure that invoices are retrieved from the outside of the sealed bags. ^[15] This is done by Duty Free Security Company Limited (Duty Free Security), who are collection agents (docket pluckers) authorised by the duty free shop.

For more information about the requirements for outward duty free sales see Chapter 6 - Making duty free sales: Outwards.

Changes to airport security arrangements on 31 March 2007 imposed restrictions on passengers carrying any liquid, aerosol or gels goods on board aircraft as hand luggage.

For information about how we administer the export of liquid, aerosol and gels duty free goods, as a result of these security changes, please refer to 'Exporting liquid, aerosol and gels duty free goods' in Chapter 6 - Making duty free sales: Outwards.

When an invoice is not retrieved, there is no proof that the goods have left Australia and the duty free shop is liable to pay us an amount equal to the rate of excise duty that was payable on the goods when they were delivered to the relevant traveller. ^[16]

For more information about when and how to pay excise duty see Chapter 8 - Accounting for excisable goods.

About Outwards on-airport duty free shops

Outwards on-airport duty free shops are located after the customs barrier in the departure lounges at international airports. Goods sold in these shops are not required to be placed in sealed bags.

About Inwards duty free shops

Inwards duty free shops are located at international airports between the disembarkation point and Customs and Immigration processing.

After the goods are sold to arriving passengers, they are presented at the inwards Customs processing point.

There are limits on the quantities of dutiable goods that can be sold. These are linked to Customs Act limits for arriving passengers.

For more information about these limits contact ABF or visit the ABF website at www.abf.gov.au

1.5.2 What do you need before you set up a duty free shop that sells excisable goods?

You need:

• a customs warehouse licence ^[17]
• an excise storage licence ^[18] , and
• a permission to sell duty free. ^[19]

	You may also need permission to move goods underbond if your suppliers don't have one.
	You will also need permission to sell duty free goods from ABF if you wish to sell imported goods duty free to relevant travellers.

Customs warehouse licence

You need to be licensed as a warehouse by ABF, before you can be granted a permission to sell excisable goods to relevant travellers. ^[20]

A proprietor of a duty free shop is the holder of a Customs warehouse licence. ^[21] Proprietor has the same meaning in the Excise Act as it has in the Customs Act. ^[22]

For more information about customs warehouse licences, contact ABF or visit the ABF website at www.abf.gov.au

Excise storage licence

You also require a licence to store excisable goods. This licence is issued by us.

For information about how to obtain an excise storage licence see Chapter 2 - Licensing: Applications.

Licence conditions

Excise storage licences for duty free shops include conditions. ^[23] These can include limits on the amount of excisable products each shop can receive over a calendar year. The quantity you can receive will be determined according to the bona fide business requirements of your duty free shop.

As part of the application process, we may ask you to nominate and justify, via a business plan, the quantity of excisable products (on which duty has not been paid) you require over the annual period.

Permission to sell duty free

Before you can sell excisable goods on which duty has not been paid, you need a permission to sell duty free. We will also issue you with this permission. ^[24]

Underbond movement permission

Excisable goods, on which duty has not been paid, cannot be moved unless there is a movement permission. This permission can be held by you or your supplier.

For information on movement permissions see Chapter 5 - Movement permissions.

1.6 What do I do if I need more information?

If you need more information on excise, as it relates to duty free shops, contact us via the Online Services for Business or the other options as listed on the excise and EEG's contact webpage .

We generally respond to written information requests within 28 days. If we cannot respond within 28 days, we will contact you within 14 days of receiving your request to obtain more information or negotiate an extended response date.

Latest update

January 2022

Section

Changes and updates

Throughout

This chapter was updated to take into account the law changes that impacted the tobacco industry, as a result of which, there is no longer excisable tobacco goods manufactured in Australia that would be subject to excise control in the duty free shop or warehouse. The update also reflects the current duty rate and updates the references from the old Business Portal to the new Online Services for Business. Updated to new format and style including footnotes.

Details of previous updates are available through the versions linked to in the table below.

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).