Excise guidelines for the tobacco industry
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Chapter 6 - Payment of duty
Purpose
This chapter deals with:
- when duty is payable
- when duty is payable under your licence
- when duty is not payable
- how to work out the amount of duty you're liable to pay, including tariff proposals and quotas
- what to do if you have a dispute as to the duty
- whether you have to account for tobacco leaf and excisable tobacco goods
- how to get a seven-day recurring tobacco excise period
- what your licence will include
- how to lodge excise returns and pay excise duty
- what to do if you have made an error on your excise return, and
- penalties that can apply to offences in relation to payment of duty.
6.1 Introduction
Excise duty is imposed at the time excisable tobacco goods are manufactured. [161] However, the duty is not required to be physically paid at the time of manufacture.
This chapter focuses on the payment of duty and the factors that influence when and how much duty is payable.
To ensure the duty is ultimately acquitted excisable tobacco goods are deemed entered and delivered for home consumption (the Australian domestic market) when they are manufactured. [162]
The liability for duty, imposed at the time of manufacture, can be acquitted by:
- payment of the duty
- remission, or
- use in the manufacture of other excisable goods.
6.2 Policy and practice
6.2.1 When is duty payable?
The liability for duty becomes payable when the excisable tobacco goods are entered and delivered into home consumption. As excisable tobacco goods are taken to be entered and delivered into home consumption at the time the goods are manufactured, the liability to pay duty arises at the point in time tobacco leaf is manufactured into an excisable tobacco good.
6.2.2 When is duty payable under licence conditions?
Under a tobacco manufacturer licence the duty is paid weekly on all tobacco goods manufactured during that week.
A licence allows you to manufacture, enter and deliver specified goods for home consumption, subject to various conditions. In particular, you must report all the goods you have manufactured that week and pay the duty on a recurring seven-day basis.
When applying for your licence, it may cover any recurring seven-day reporting period (the tobacco excise period). You may specify in your application the seven-day period you wish to use, for example, Wednesday to Tuesday. The application must be made on the approved form.
A manufacturer licence and tobacco excise period is given in writing and includes:
- your name as the holder of the licence
- the kind of goods to which the licence applies
- the place from which the goods may be manufactured
- the start date of the licence and tobacco excise period, and
- any special requirements during the tobacco excise period.
In considering your application for a licence we will take into account various factors including compliance with all laws administered by the Commissioner of Taxation and the protection of the revenue. This includes whether you have complied with the requirements of any previous licences and permissions you have been given. If we refuse to give a licence we will issue you a notice in writing setting out the reasons for the refusal.
A decision we make in relation to the period of a licence or any condition for a licence is a reviewable decision. [163]
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| For information about your review rights refer to C hapter 8 - Reviews and objections. |
If you have a licence with a seven-day tobacco excise period for excisable tobacco goods you must:
- lodge an excise return, on the due date specified in your licence. The return details the goods you have manufactured during the tobacco excise period, and
- pay the duty, on the first business day following the end of the seven-day period, on the goods you have manufactured within the tobacco excise period. [164]
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| A 'business day' is a day that is not a Saturday or Sunday or a public holiday in the place where you lodge your return. |
If we determine a different tobacco excise period we will advise you in writing that your licence will be amended from the day specified in the notice. We will give you the amended licence stating the new seven-day tobacco excise period.
If you advise us in writing that you wish to change the seven-day period of your tobacco excise period, we may, in writing, amend your current licence stating the new preferred period. We will notify you of the day the change comes into effect.
Example 6A Crown Tobacco Company (CTC) is licensed to manufacture excisable tobacco goods. The seven-day tobacco excise period is specified on their licence. CTC as the licensed manufacturer must pay the excise duty on all tobacco goods produced by them from the time of manufacture. The tobacco excise period is for the period Monday to Sunday. Therefore CTC is able to manufacture excisable tobacco goods and defer payment of excise duty, on those goods, until after the end of period. On the first working day after the end of the period (that is, Monday, unless it is a public holiday in which case it will be due on Tuesday) CTC must lodge an excise return for any excisable tobacco goods manufactured during the period and pay the excise duty owing on those goods. We will send CTC written confirmation, after the excise return has been processed. |
6.2.3 When is duty not payable?
There are circumstances in which no duty will be payable. These include where:
- cured tobacco leaf is exported
- a remission circumstance applies, or
- within the seven day tobacco excise period any manufactured tobacco goods on which the duty has yet to be paid is used in the manufacture of other excisable tobacco goods
6.2.4 How do I work out the amount of duty to pay?
To work out how much duty you need to pay you will need to know the:
- tariff classification of the excisable tobacco goods
- quantity of the excisable tobacco goods you manufacture (that is deemed entered and delivered for home consumption), and
- rate of duty on the excisable tobacco goods.
Classification of excisable tobacco goods
The Schedule to the Excise Tariff Act(the Schedule) lists those goods that, if manufactured in Australia, are subject to excise. The table also contains the rate of duty applicable to the goods. For the excisable tobacco goods the relevant part of the table is as follows:
Excise duties | |||
Item | Subitem | Description of goods | Rate of Duty |
5 | Tobacco, cigars, cigarettes and snuff | ||
5.1 | In stick form not exceeding in weight 0.8 grams per stick actual tobacco content | * *excise duty rate per stick | |
5.5 | Either:
| * * Applicable rate (see section 6AAB of the Excise Tariff Act) per kilogram of tobacco content | |
5.8 | Blended tobacco goods | The amount of duty worked out under section 6AAC | |
* For the current rates of duty, refer to the table in the Tobacco excise page on our website. Use the following link: ATO Excise rates for tobacco
Tobacco, cigars and cigarettes are all classified to item 5 but only cigars and cigarettes are in stick form so, if the individual sticks do not exceed 0.8 grams in weight of tobacco (that is, not including filters or paper), they are classified to subitem 5.1. Products such as cigars and cigarettes with more than 0.8 grams of tobacco, pipe tobacco, ready rubbed tobacco, molasses tobacco and snuff are classified to subitem 5.5.
Where the manufacture of tobacco goods uses ingredients from other tobacco goods on which duty may have been paid (for example, imported tobacco leaf on which customs duty has been paid), the goods are classified to subitem 5.8 and the amount of duty payable on the 'blended tobacco goods' is worked out under section 6AAC of the Excise Tariff Act .
Although snuff is listed in the Schedule, there is currently a permanent ban on its supply, along with chewing tobacco, under the Trade Practices Act 1974 - Consumer Protection Notice No. 10 of 1991 - Permanent Ban on Goods.
Quantity of excisable tobacco goods
Duty for excisable tobacco goods is levied on the quantity of the products themselves.
Tobacco quantityis measured in sticks (for example, cigarettes) or kilograms of tobacco content which includes anything (including moisture and other additives) added to the tobacco leaf during manufacturing or processing. This includes such things as molasses added to tobacco for use in a hookah pipe. The molasses would be included when determining the quantity of tobacco. [165]
When calculating the quantity of tobacco content in kilograms you should calculate to two decimal places.
Rate of duty on excisable tobacco goods
The rate of duty is set in the table in the Schedule. The rates of duty on excisable tobacco goods are subject to change. They are indexed twice a year in March and September [166] in accordance with increases in the AWOTE (average weekly ordinary time earnings) figures published bi-annually by the ABS (Australian Bureau of Statistics). They can also be subject to other changes resulting from government policy.
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| For ease of reference we provide a 'working tariff', incorporating indexation changes, on our website. Use the following link: ATO Excise rates for tobacco |
The rate of duty you use is the rate contained in the working tariff for the subitem. It will also depend on the seven-day tobacco excise period on your licence. The rate applicable is at the time you manufacture the tobacco goods, as they are deemed to be entered for home consumption, and delivered for home consumption at that time. [167]
Example 6B When goods are manufactured during the tobacco excise period, the rate of duty that applies is the rate in force at the time the goods are taken to be entered and delivered for home consumption. On 10 March 2021 a manufacturer produces one million cigarettes under its licence. The cigarettes are classified to subitem 5.1 of the Excise tariff. The rate of duty that applies is the rate in force on 10 March 2021 - $1.10360 per stick, even though the duty will not be paid until the end of the tobacco excise period. |
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| The amount of duty payable is then calculated by multiplying the quantity of excisable tobacco goods by the applicable rate of duty. |
Example 6C 1,000,000 cigarettes are manufactured on 10 March 2021 under an excise manufacturer licence. The cigarettes are classified to subitem 5.1 of the Excise tariff and have a duty rate of $1.10360 per stick. Therefore, the duty payable is 1,000,000 sticks × $1.10360 = $1,103,600.00 |
If you have manufactured cigarettes classified to subitem 5.1 and pouch tobacco classified to subitem 5.5 then you need to add more than one line onto the excise return and then calculate the total duty liability for both lines.
What happens if the rate changes during my seven-day tobacco excise period?
If the rates of duty change within your tobacco excise period, you may lodge two excise returns or, alternatively, include separate lines for the same product on one return; that is:
- one return or line for goods manufactured under the old rates, and
- one return or line for goods manufactured under the new rates.
Example 6D The rate of duty for tobacco in stick form not exceeding 0.8 g per stick actual tobacco content increased on and from 1 September 2020 (a Tuesday) from $0.94964 to 1.10360 per stick. Sovereign Tobacco holds an excise manufacturer licence specifying a weekly tobacco excise period commencing Monday. Sovereign Tobacco manufactures one million cigarettes daily at its licensed factory premises. In its excise return for Monday 7 September, Sovereign Tobacco uses separate line entries for product manufactured at the old rate and at the new rate: |
Line | Tariff item | Quantity | Units | Duty rate | Excise amount |
1 | 5.1 | 1,000,000 | stick | $0.94964 | $949,640.00 |
2 | 5.1 | 6,000,000 | stick | $1.10360 | $6,621,600.00 |
How can the rate change?
In addition to AWOTE increases, as described above, the applicable rate of excise duty can also be affected by:
- changes to the Excise Tariff Act (including tariff proposals), or
- quotas
Changes to the Excise Tariff Act
Where the Government decides to change the rate of excise applying to certain excisable goods, or to start applying excise to certain goods or stop applying excise to certain goods this requires an amendment to the Excise Tariff Act. The Government normally notifies the intention to do this with 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. [168] 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 paid will be refunded to you. |
Quotas
The Commissioner has the discretion to declare that a period is a declared period during which quotas can be imposed. During a declared period, the Commissioner has the discretion to make a quota order that specifies the amount of excisable goods that a person may enter for home consumption (or manufacture in the case of tobacco goods) at the prevailing rate of duty. If a person exceeds their quota amount during a declared period, the duty rate applicable to the excess is the rate in force on the day after the end of the declared period. [169] If the excise rate increases, they become liable to pay the increased rate for the goods that are in excess of their quota amount (excess goods).
Where we believe that persons are anticipating an increase in the rate of duty, and as a result the clearances of excisable tobacco goods in a particular period is likely to be greater than it otherwise would be, we will publish a notice in the Commonwealth Gazette . This notice will state that a particular period is a 'declared period'. [170] Use this link to access PS LA 2012/3 Determining and applying quotas under the Excise Act 1901 .
The 'declared period' is the period during which quotas will operate. To establish what your quota is we will consider the amounts of your past deliveries. [171]
Once we have established your quota we will give you a written quota order that specifies the maximum level (which can be nil) [172] of excisable tobacco goods that you can enter and deliver into home consumption (manufacture) at the applicable excise rate in force during the declared period.
If, at any time during the declared period, you exceed your quota you are required to pay the duty on the excess goods at the existing rate.
At the end of the declared period we will reconcile your deliveries with your quota. If you manufactured more than your quota, then the duty for the amount in excess of the quota is calculated at the rate in force the day after the declared period ends. Therefore, if the rate has gone up, you will pay the higher rate of duty on the amount in excess of your quota.
We can vary or revoke a quota order any time before the end of the declared period or 60 days after the making of the quota order whichever occurs last.
6.2.5 What do I do if I have a dispute as to the duty?
If you dispute [173] :
- the amount of duty
- the rate of duty, or
- the liability of goods to duty (for example, whether the goods are excisable),
you may deposit with us the amount of duty demanded.
The deposit of this duty is to be made on an excise return. The excise return should be accompanied by a letter which sets out the details of the dispute. You have six months after making the deposit to commence court action. If that action is decided in your favour we are obliged to refund you the deposit along with interest of 5% p.a. If the action is not commenced within six months or the court does not find in your favour the amount deposited is taken to be the correct amount of duty.
However, you may not commence court action if you have a taxation objection under Part IVC of the Taxation Administration Act 1953 (TAA) against a private ruling and the matter of the objections:
- relates to the amount or rate of duty, or
- the liability of the goods to duty, and
- the matter of the objection is also in dispute. [174]
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| For more information on private rulings see section 8.4.1 - Private Rulings |
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| These disputes do not apply to changes brought about by a tariff proposal. |
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| For more information on tariff proposals see section 6.2.4 - How do I work out the amount of duty to pay? |
Generally, duty disputes under section 154 of the Excise Act only applies to goods that are delivered under pre-payment as entitlement to delivery of the goods is dependent on the deposit being paid and a proper entry being made. [175] However, section 154 also applies to all manufactured tobacco goods when the amount of duty demanded is paid within the tobacco excise period as a proper entry is deemed to have occurred at the time of manufacture.
Manufacture of the goods and payment of interest do not apply in cases where we are of the opinion that any evasion under the Excise Act has been committed or attempted.
6.2.6 Do I have to account for tobacco leaf and excisable tobacco goods?
Where you have or had possession, custody or control of any tobacco leaf [176] and/or excisable tobacco goods [177] (subject to our control) you have to be able to satisfactorily account for them when requested.
If we ask you to account for tobacco leaf or excisable tobacco goods, and you cannot satisfactorily do so, then you will generally be required to pay an amount equal to the excise duty which would have been payable. In the case of tobacco leaf, the amount payable is equal to the excise duty if it had been manufactured into excisable goods classified to subitem 5.5 of the Schedule to the Excise Tariff Act. [178]
If we require this payment you will be given a written demand. The amount you are required to pay is calculated using the rate in force on the day the demand is made. A payment of duty (or an amount equal to the duty) does not prevent the Commissioner from pursuing other liabilities arising under the Excise Act for the same goods. [179]
When requested to account for goods you must be able to show that:
- for tobacco leaf, the goods are still under excise control
- duty has been paid
- duty was not payable (for example, where a remission applied), or
- the goods have otherwise been dealt with in accordance with the law (for example, tobacco leaf was moved pursuant to the conditions of a movement permission and the goods, and responsibility to keep the goods safely and account for them when requested has been taken up by another person or the goods were exported).
Goods will not have been accounted for satisfactorily if they were:
- given away for promotional purposes [180]
- stolen from licensed premises, [181] or
- delivered into the Australian domestic market under the mistaken belief that they were not excisable. [182]
We may also demand payment from you if you have failed to keep excisable tobacco goods safely (for example, if you have a break-in and a theft occurs). Again you will generally have an opportunity to pay the excise duty. If the duty is not paid, we may demand that you pay an amount equal to the duty payable at the rate applicable on the day of the demand. [183] If we require this payment you will be given a written demand.
Our decision to demand payment is a reviewable decision. [184]
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| For information about your review rights refer to Chapter 8 - Reviews and objections . |
In determining whether you have accounted for the excisable tobacco goods, we may allow you to offset any stock shortages and surpluses.
Example 6E A licensed manufacturer of tobacco goods is asked to account for their excisable tobacco goods that were manufactured. As part of the audit, they carry out a stocktake of what is in the warehouse. There is a surplus of 4,000 sticks of Brand × and a shortage of 10,000 sticks of Brand Y compared to their book stock. We will allow the manufacturer to offset the surplus and shortage and correct the book stock. Therefore, there are 6000 sticks that have not been accounted for. A demand will be issued for an amount equal to the excise duty payable on the 6,000 sticks. |
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| For more information about refunds and remissions see Chapter 7 - Remissions, refunds, drawbacks and exemptions. |
6.3 Procedures
6.3.1 How do I get a tobacco excise period?
If you apply for a manufacturer licence, you can use your application form to indicate when you want your recurring seven-day period (the tobacco excise period) for the licence to start and end. You do not need to complete a separate application.
If we approve your licence, we will notify you in writing within 28 days of receiving your completed application.
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| A licence is not transferable to another person and remains in force until revoked. |
6.3.2 What does my licence include?
Your licence in relation to excisable tobacco goods will include:
- permission to manufacture excisable tobacco goods and deliver the products into home consumption
- conditions, such as:
- tobacco excise period - the period specified on which goods can be manufactured before an excise return and payment must be lodged [185]
- the type of goods that may be manufactured from each premises
- quantity limits (if any)
- when you must pay the duty
- how you must pay - permitted methods (for example, EFT, cheque, at a Post Office)
- when and how to lodge your excise return, [186] and
- record-keeping requirements
- a schedule listing:
- one or more premises from which you may manufacture tobacco goods or store tobacco leaf.
Example 6F A licence specifies a tobacco excise period starting on Saturday and ending on Friday. It states that excise returns must be lodged by 4 pm on the first business day after the end of the tobacco excise period. It also says that the duty on tobacco goods manufactured during the tobacco excise period must be paid at the same time as the excise return is required to be lodged. You must lodge an excise return and pay the duty by 4 pm on Monday for all goods manufactured during the tobacco excise period. When a public holiday falls on a Monday, the excise return is due for lodgment and duty is to be paid by 4 pm on Tuesday, the next business day. |
Where you have deliveries in different states of Australia there may be different public holidays in those states. If your returns are prepared by an office in a state different from that in which the manufacture occurs, lodgment is due on the next business day in the state where the return is prepared. [187]
The TAA provides the Commissioner with the power to allow the payment of a tax related liability (including excise duty) and lodgment of an approved form (including an excise return) to be deferred in certain circumstances. Law Administration Practice Statement PSLA 2011/14 and 2011/15 provide details of when the Commissioner can exercise this power, with the main requirement being that the circumstance that led to the request to defer payment or lodgment is outside the control of the entity required to pay the liability and lodge the return.
Circumstances that are accepted as outside the control of a licence holder include natural disaster, serious illness or legal impediment, while an example of a circumstance that would not satisfy the requirements of the PSLA would be a licence holder closing down their operations for Christmas holidays (other than acknowledged public holidays).
6.3.3 What must I do to legally manufacture and deliver tobacco goods into home consumption?
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| If we provide you with a licence, you must take the following steps when manufacturing excisable tobacco goods:
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6.3.4 How do I lodge excise returns and pay excise duty?
To lodge your excise return (NAT 4285):
- use the Online Services for Business , or
- post it to:
- Excise Returns Processing Unit
- PO Box 3007
- PENRITH NSW 2740
You can pay excise duties:
- by electronic funds transfer, including direct credit and BPAY
- using a credit card
- in person at a Post Office, or
- by mail (cheque or money order).
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| If you are required to pay your other tax debts electronically, you must also make your payment for excise duty by electronic funds transfer. |
If you pay the excise duty at a Post Office, you must use a payment advice. To obtain a payment advice booklet, phone us on 13 72 26 or, if you need further information, 1800 815 886 and supply us with your Australian business number (or Excise Identification Number) and client account number.
Lodgment of an excise return and payment of any duty must be made by the day and time stated on your licence. This means that we must receive the funds by that time. [188]
Failure to pay on time will result in a liability to pay the general interest charge on the amount of Excise duty unpaid [189] and may result in the cancellation of your licence.
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| To obtain an excise return (NAT 4285):
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| For more information about completing your excise return refer to the Excise return instructions (NAT 15436). |
6.3.5 What do I do if I have made an error on my excise return?
You may correct errors in your excise return or add new lines by lodging an amending excise return and referencing the number of your original return.
If your amendment results in a shortfall in excise duty paid, you must pay the additional duty and any general interest charge when you lodge the amending return.
If your amendment results in an overpayment of excise duty, you may apply for a refund or treat the amount as a credit and offset it against the duty you are liable to pay in your next excise return.
An amending return can only be used to change product details such as tariff item, volume or rate of duty.
If you wish to change other information in your original excise return (for example client details or the tobacco excise period) you must lodge a new excise return form as the amending excise return form does not cater for changes to these sections. The new return must contain the amended details and refer to the original return. You should also request cancellation of the original return.
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| To obtain an Amending excise return (NAT 4286):
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| For more information about completing your Amending excise return refer to the:
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6.3.6 What do I do if I need more information?
If you need more information on payment of duty contact us as follows:
- the Online Services for Business
- phone 1300 137 290
- email at tobacco@ato.gov.au , or
- write to us at
- Australian Taxation Office
- PO Box 3514
- ALBURY NSW 2640
We will ordinarily respond to electronic requests within 15 business days and finalise private rulings within 28 days. If we cannot respond within 28 days, we will contact you within 14 days to obtain more information or negotiate an extended response date.
6.4 What penalties can apply to offences in relation to payment of duty?
The following are the penalties that may apply after conviction for an offence.
6.4.1 Move, alter or interfere
If you move, alter or interfere with excisable tobacco goods that are subject to excise control, without permission, the penalty is a maximum of two years in prison or the greater of 500 penalty units and five times the amount of duty on the excisable tobacco goods. [190]
6.4.2 Evade
If you evade payment of any duty which is payable, the maximum penalty is five times the amount of duty on the excisable tobacco goods, or where a court cannot determine the amount of that duty the penalty is a maximum of 500 penalty units. [191]
6.4.3 False or misleading statements
If you make a false or misleading statement, or an omission from a statement in respect of duty payable on particular goods, to us, a penalty not exceeding the sum of 50 penalty units and twice the amount of duty payable on those goods. [192]
In some cases these penalties can be in addition to the duty that is payable on the excisable tobacco goods as they have been delivered into home consumption. [193]
Latest update
December 2021
| Section | Changes and updates |
| Throughout | This chapter was updated to take into account law changes that impacted the tobacco industry, which repealed provisions allowing for the movement and storage of excisable tobacco goods on which duty has not yet been paid. The update also reflects the current duty rate and replace 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
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| Date: | Version: | |
| 1 July 2006 | Original document | |
| 1 September 2014 | Updated document | |
| 1 April 2015 | Updated document | |
| You are here | 17 December 2021 | Current document |