House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Excise Tariff Amendment Bill (No. 1) 2001 and Customs Tariff Amendment Bill (No. 2) 2001

The purpose of this legislation is to incorporate proposed amendments to the Excise Tariff Act and the Customs Tariff Act, to give effect to a budgetary measure, 2 tax reform initiatives that accompanied the introduction of the New Tax System, Product Stewardship (Oil) arrangements and a package of cuts to fuel taxes announced by the Prime Minister on 1 March 2001.

Aviation kerosene

These Bills will incorporate proposed alterations to the Excise Tariff Act and the Customs Tariff Act to increase the rates of excise and customs duty on aviation kerosene to fund airport regulation activities by the ACCC.

Date of effect: The alterations to the rates of excise and customs duty were initially notified by Excise Tariff Notice No. 1 (2000) and Customs Tariff Notice No. 1 (2000), which were published in Special Commonwealth Gazettes Nos. S247 and S244 on 12 May 2000.

Excise Tariff Proposal No. 1 (2000) and Customs Tariff Proposal No. 3 (2000) were tabled in Parliament on 6 June 2000. The alterations will take effect on and from 13 May 2000.

Proposal announced: A measure was announced in the 2000-2001 Budget to increase the rates of excise and customs duty on aviation kerosene to provide for recovery of airport regulation costs of the ACCC.

Financial impact: The increase in the rates of aviation kerosene excise and customs duty by 0.036 cents per litre to 2.795 cents per litre is targeted towards the beneficiaries of airport economic regulation (the airlines). It provides required revenue of $0.9 million per annum to fund the budgetary measure.

Compliance cost impact: Ongoing compliance costs are negligible for the Government and the aviation industry, as legislative and administrative arrangements are already in place.

Alcoholic beverages

These Bills will incorporate proposed alterations to the Excise Tariff Act and Customs Tariff Act to:

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increase the excise and customs duty on alcoholic beverages to offset the removal of the WST;

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introduce a 3-tiered duty rate structure for beer;

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apply excise and customs duty to other alcoholic beverages not previously covered, and not subject to the WET; and

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bring excise and customs duty rates for non-potable spirits into line with rates applying to other spirits.

Date of effect: The alterations to the Excise Tariff Act and Customs Tariff Act were proposed by Excise Tariff Proposal No. 2 (2000), and Customs Tariff Proposal No. 2 (2000), and tabled in Parliament on 21 June 2000. The amendments will take effect on and from 1 July 2000.

Proposal announced: The reform proposal was announced as part of the ANTS policy document in August 1998. In this document, the Government outlined a number of changes to the existing treatment of alcoholic beverages.

Financial impact: The excise and customs duty levied on alcoholic beverages by this Bill commenced on 1 July 2000 and are budgeted to raise around $1.2 billion in 2000-2001.

Compliance cost impact: The change in the type of products subject to alcohol excise rates will affect approximately 20 new and 50 existing clients. The cost of compliance for new clients arises from the need to obtain a licence, submit plans of their premises and ensure adequate bond facilities, monitor production, delivery and sales, and remit excise on an ongoing basis. Existing clients need only register for a new category of excisable product. They already have systems in place to monitor production and calculate excise payable.

Summary of regulation impact statement

Regulation impact on business

Impact: There will be some impact on manufacturers of alcoholic beverages who are new clients to the ATO as well as existing excise clients. Once the initial compliance measures are in place it is expected that the impact and cost of compliance will be minimal. Alcoholic beverages are likely to rise slightly in price due to the changes.

Main points:

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The tax reform changes will impact on a small number of manufacturers of alcoholic beverages who are not currently subject to excise. These manufacturers will be required to be licensed and pay excise. It is expected that changes to computer systems to meet record keeping obligations would be minimal. Around 50 existing clients will be required to pay excise on beverages not previously covered by excise.

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Retailers and consumers will be relatively unaffected by the changes. The price of a carton of full strength beer is likely to rise slightly and the beverages that have previously not been subject to excise are also expected to rise by the amount that the new excise duty exceeds the sales tax formerly payable.

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Based on the small number of clients affected, the initial cost of compliance is estimated to be less than $300,000 across the industry. The ongoing cost of compliance is estimated to be minimal.

Petroleum products (ANTS measure)

These Bills will incorporate proposed alterations to the Excise Tariff Act and Customs Tariff Act to reduce the rates of excise and customs duty for certain fuels and potential substitutes (petrol, diesel and other petroleum products attracting excise at the unleaded/diesel or leaded petrol rate) to offset the introduction of the GST.

Date of effect: Excise Tariff Proposal No. 3 (2000) and Customs Tariff Proposal No. 4 (2000) were tabled in Parliament on 29 June 2000. The amendments will take effect on and from 1 July 2000.

Proposal announced: The reform proposal was announced as part of the ANTS policy document in August 1998. In this document, the Government outlined that excise on petrol and diesel would be reduced on introduction of the GST so that pump prices need not rise.

Financial impact: The reduction in rates of excise and customs duty for certain fuels and potential substitutes of 6.656 cents per litre commenced on 1 July 2000 and are budgeted to reduce excise revenue by around $2.1 billion in 2000-2001.

The excise duty reductions are complemented by the Fuel Sales Grant Scheme, which will provide grants to retailers of petrol and diesel in non-metropolitan and remote areas to address the divergence in fuel prices between the cities and regional areas. Taken together, these measures give effect to the Governments commitment to maintaining fuel prices for consumers as a result of the introduction of the GST.

Compliance cost impact: Negligible.

Product Stewardship (Oil)

The Excise Tariff Amendment Bill No. 1 (2001) will incorporate proposed alterations to the Excise Tariff Act to change the way the rate of excise for item 15 products is expressed to ensure that indexation applies correctly to such products, and allow set-offs of customs duty against excise liability for petroleum products in certain instances.

Date of effect: The alteration to the way the rate of excise for item 15 product is expressed was initially notified by Excise Tariff Notice No. 1 (2001), which was published in Special Commonwealth Gazette No. S31 on 29 January 2001, and tabled as Excise Tariff Proposal No. 1 (2001), to take effect on and from 31 January 2001. The alterations to allow set-offs were proposed by Excise Tariff Proposal No. 2 (2001), to take effect on and from 1 January 2001. Both proposals were tabled in Parliament on 8 February 2001.

Proposal announced: The alterations correct technical deficiencies identified in existing legislation.

Financial impact: The set-off alterations provide a benefit to importers of excise equivalent petroleum products by averting a double taxation problem, where the imported product is used in local manufacture of excisable petroleum products. The changes allow set-offs of customs duty when calculating excise liability for petroleum products.

Compliance cost impact: Nil.

Fuel tax reductions

These Bills will incorporate proposed alterations to the Excise Tariff Act and the Customs Tariff Act to reduce the rates of excise and customs duty for certain petroleum fuels.

Date of effect: Excise Tariff Proposal No. 3 (2001) and Customs Tariff Proposal No. 2 (2001) were tabled in Parliament on 1 March 2001. The amendments will take effect on and from 2 March 2001.

Proposal announced: A package of measures to cut fuel taxes was announced by the Prime Minister on 1 March 2001. Reductions in the rates of excise and customs duty on certain petroleum fuels form part of this package.

Financial impact: The impact of the reduction in rates of excise and customs duty for certain petroleum fuels on the 2000-2001 Budget is $140 million.

Compliance cost impact: Negligible.