House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Customs and Consumer Affairs, the Hon. Warren Truss MP)

SCHEDULE 1

AMENDMENTS TO THE EXCISE TARIFF ACT 1921

Item 1 - After subsection 3(1)

Prior to 31 January 1998, the first 30 million barrels of crude oil produced from onshore oil fields were exempt from excise. This exempt crude oil was formally defined as "exempt onshore oil".

As part of the fuel substitution reforms (discussed later in this explanatory memorandum), which came into effect on that day, all production of onshore oil became subject to the excise regime. This now includes the first 30 million barrels from each onshore field.

The Amendment Act replaced the former definitions of "exempt onshore oil" and "exempt onshore field" with the new definitions of "pre-threshold onshore oil" and "onshore field" (items 5 and 6 of Schedule 1 to the Amendment Act). These new definitions removed all references to the word "exempt" from the previous definitions in order to remove the connotation that the first 30 million barrels was exempt from excise duty.

As a result of the new definitions, the previous by-laws which prescribed the onshore fields under the definition of "exempt onshore field" were revoked and replaced by new by-laws under the definition of "onshore field", which took effect from 31 January 1998.

At the time the new definitions came into effect, some existing producers of onshore oil had used up their 30 million barrels exemption under the old definitions. Others had partially used their entitlement. It was not intended that the new definitions or the new by-laws would create any new entitlements to excise concessions, in particular, a further 30 million barrels excisable at the rate of "Free". However, it could be argued the new definitions do create such new entitlements.

The Item inserts a declaratory provision into subsection 3(1) of the Act (the definitions provision) to make clear the new definitions inserted into the Act by the Amendment Act do not create any new entitlements. For those producers who have completely used up their 30 million barrels exemption, there is to be no new entitlement to any concession. For those producers who have partially used their exemption under the old definitions, they will be entitled to continue to claim the duty "Free" exemption under the new definitions up to the 30 million barrel limit.

Item 2 - Subsection 3A(1)

In addition to the amendments outlined in the previous explanatory note, all other references to exempt onshore field" in excise legislation were repealed and replaced with references to "onshore field. However, one reference to "exempt onshore field" was overlooked. This reference is contained in subsection 3A(1) of the Act, which relates to guidelines which the Minister for Primary Industries and Energy may make, that are to be taken into account by the Chief Executive Officer of Customs when making by-laws prescribing an exempt onshore field. Item 2 makes the necessary correction, by substituting the term exempt onshore field, with onshore field.

Item 3 - Interpretation provisions in, and relating to, the Schedule

At the commencement of the Tariff, several definitional and interpretation provisions are included. The penultimate paragraph commences with the phrase "Except in item 3". Item 3 of the Schedule to the Act was repealed in 1983. However, the phrase mentioned above was not removed. Item 3 has the effect of removing these words from the Tariff.

Item 4 - Subparagraph 11(A)(3)(a) of the Schedule

Item 5 - Subparagraph 11(H)(1)(a) of the Schedule

Item 6 - Subparagraph 11(H)(2)(a) of the Schedule

During 1997, the Government decided to reduce the excise payable on avgas, effective from 3 July 1997.

Prior to 31 January 1998, the excise duty payable on avgas was assessed under subparagraph 11(A)(3)(a) of the Tariff.

On 31 January 1998, the legislation package implementing the fuel substitution reforms (discussed below) came into effect. Part of these reforms involved a complete restructure of item 11 of the Tariff. This was effected by the passage of the Amendment Act. Avgas is now classified to subparagraph 11(H)(1)(a) (if contained in packages not exceeding 210 litres) or 11(H)(2)(a) (if contained in larger packages). The duty rate was set at $0.18003 per litre. This rate did not reflect the decision referred to in the first paragraph of this explanatory note.

The aggregate effect of these changes sets the excise duty payable on avgas at $0.17403 per litre, as from 3 July 1997.

Item 7 After subparagraph 11(B)(2)(c) of the Schedule

Item 8 After subparagraph 11(C)(2)(b) of the Schedule

Item 9 After paragraph 11(E)(3) of the Schedule

Item 10 After paragraph 11(F)(3) of the Schedule

Item 11 After paragraph 11(G)(4) of the Schedule

Item 12 After subparagraph 11(H)(2)(d) of the Schedule

Item 13 After subparagraph 11(I)(3)(c) of the Schedule

Item 14 After subparagraph 11(J)(2)(c) of the Schedule

On 31 January 1998, a package of 9 Acts, which implements the Government's Budget decision to combat revenue loss through the minimisation of fuel substitution practices, commenced operation.

This involved, amongst other things, a new classification structure for petroleum products under item 11 of the Tariff.

However, the petroleum industry was concerned the new structure may create misunderstandings in relation to the excise liability of some petroleum products which are intended for uses otherwise than as fuel.

These items propose technical amendments to the new item 11, so as to eliminate any potential misunderstandings, or any unintended windfall gains. These amendments involve the introduction of new subheadings into most of the subitems of item 11. These subheadings cover petroleum products for use otherwise than as fuels and provide excise duty rates of $0.42797 per litre for unleaded products and $0.44972 per litre for leaded products in line with the existing duty differential between such products. These technical amendments do not widen the scope of the fuel substitution minimisation legislation.