House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP, and the Assistant Minister for Immigration and Border Protection, Senator the Hon Michaelia Cash)

General outline and financial impact

Indexation changes and staged increases to tobacco excise and excise equivalent customs duty

The Excise Tariff Amendment (Tobacco) Bill 2014 and the Customs Tariff Amendment (Tobacco) Bill 2014 amend the Excise Tariff Act 1921 and the Customs Tariff Act 1995 to:

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increase the rates of excise and excise equivalent customs duty on tobacco through a series of four staged increases of 12.5 per cent, commencing on 1 December 2013; and

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index the rates of excise and excise equivalent customs duty on tobacco to average weekly ordinary time earnings (AWOTE) instead of the consumer price index (CPI). The last CPI indexation occurred on 1 August 2013 and the first AWOTE indexation occurs on 1 March 2014.

Date of effect: The first of the staged increases applies from 1 December 2013. The first indexation adjustment under the new indexation arrangements occurs on 1 March 2014.

Proposal announced: The Treasurer and the Assistant Treasurer announced that the Government would proceed with these measures in a joint Media Release titled 'Restoring integrity in the Australian tax system' of 6 November 2013.

Financial impact: The staged increases have the following revenue implications:

This revenue impact does not include the following estimated increase in goods and services tax collections:

Indexation to AWOTE has the following revenue implications:

This revenue impact does not include the following estimated increase in goods and services tax collections:

Human rights implications: These Bills are compatible with human rights. See Statement of Compatibility with Human Rights , paragraphs 1.39 to 1.45.

Compliance cost impact: Minor transitional compliance and administration costs are expected from these measures.

Summary of regulation impact statement

Regulation impact on business

Impact: Low.

Main points:

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The impact on tobacco companies and retailers is limited as all systems for excise increases are currently in place and the increases are simple changes in the rate and indexation of duty.

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There has been a significant lead time before the increases take effect, especially for those which occur in later years.

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The staged increases take effect on the same day as biannual indexation from 2014, which minimises compliance costs for tobacco companies and retailers.

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While increases to the excise rate have the potential to increase the illicit trade in tobacco, Australian Customs and Border Protection Service detection data does not support the premise that tobacco smuggling increased following previous excise rate increases.