Excise guidelines for the tobacco industry

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Chapter 1 - Introduction to excise on tobacco

Purpose

This chapter deals with:

• what is excise?
• overview of excise legislation relevant to tobacco
• who administers excise?
• when are you involved in the excise system?

It provides a general introduction to excise as it relates to tobacco and tobacco goods .

1.1 What is excise?

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

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 the manufacture or production 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.

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.

1.2 Overview of excise legislation

The principal legislative framework for the excise system, relating to tobacco, is contained in the:

• Excise Tariff Act 1921 (Excise Tariff Act)
• Excise Act 1901 (Excise Act), and
• Excise Regulation 2015 (Excise Regulations)
• Taxation Administration Act 1953 .

To change the Excise Tariff Act requires an amending act to be passed by Parliament. However, there are parliamentary procedures which allow for the modification of the Excise Tariff Act so that changes proposed to Parliament by the government 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 manufactured or produced in Australia that are listed in the Schedule to the Act. 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), it provides a description of the items and subitems and specifies the rate of duty applicable to each. The goods that are currently subject to excise fall within three broad groups:

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

The following is the tobacco goods section of the Schedule:

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: not in stick form; or in stick form exceeding in weight 0.8 grams per stick actual tobacco content	Applicable rate (see section 6AAB) per kilogram of tobacco content
	5.8	Blended tobacco goods	The amount of duty worked out under 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 and snuff are classified to subitem 5.5.

Although snuff is listed in the Schedule to the Excise Tariff Act, 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. [4]

What is tobacco?

It is necessary to understand what tobacco is and what plants produce tobacco leaf to determine whether a product is classified to item 5.

Tobacco is defined in the Excise Tariff Act ^[5] as 'tobacco leaf subjected to any process other than curing the leaf as stripped from the plant'.

This means that until tobacco leaf is subjected to processes after curing it is not excisable.

The Excise Act further clarifies that 'for the purposes of this Act, treat as tobacco any thing (including moisture) added to the tobacco leaf during manufacturing or processing'.

Although tobacco seed, plant or leaf (up to and including leaf that has been cured) are not excisable goods, they are subject to special provisions in the Excise Act which strictly control production and/or possession of these goods and provide for penalties.

The species of the Nicotiana genus that are generally used for smoking, chewing or snuff are considered to produce tobacco leaf. Those species are currently Nicotiana tabacum, Nicotiana rusticum and Nicotiana sylvestris.

Should other species of Nicotiana be developed where the leaves are generally used for smoking, chewing or as snuff then those species would also be considered to produce tobacco leaf.

Indexation of the duty rate

The rates of excise are set in the Schedule to the Excise Tariff Act. Both alcohol and fuel duty rates are indexed each six months by reference to the All Groups Consumer Price Index published quarterly by the Australian Bureau of Statistics, in accordance with section 6A of the Excise Tariff Act.

Tobacco is indexed by reference to the AWOTE (Average Weekly Ordinary Time Earnings) figures produced bi-annually by the Australian Bureau of Statistics in accordance with section 6AA of the Excise Tariff Act.

The AWOTE figure is published twice a year, in February and August. The indexation of duty rates for tobacco now occurs in March and September.

Indexation increases also apply to rates which are set by a Tariff Proposal and not yet passed into law.

We publish these new rates in the Commonwealth Gazette and, for ease of reference, we provide a 'working tariff' which shows a table with up-to-date rates taking account of the indexation increases. Use the following link: ATO Excise rates for tobacco

Tariff Proposals

The term 'Tariff Proposal' is a reference to the proposal in Parliament by the government of an Excise Tariff, or Excise Tariff alteration. A Tariff Proposal can lower or raise duty rates and add, remove or alter the description of goods which are subject to excise duty.

We immediately apply a Tariff Proposal put before Parliament by the government as if the law had already been amended.

If Parliament is not sitting, the Commissioner is empowered under section 160B of the Excise Act to publish a Notice in the Gazette of the intention of the government to put a Tariff Proposal within seven sitting days of Parliament.

Such a Notice is deemed to be a Tariff Proposal as described above and so we also apply such a Notice as though it was already law. You cannot commence proceedings against us for any action taken to collect the amount set by a Tariff Proposal during the periods specified in section 114 of the Excise Act. ^[6]

An amending Act must subsequently be made within 12 months to validate any excise duty collected by us pursuant to the particulars of a Tariff 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.

1.2.2 Excise Act

The Excise Act imposes controls in three main areas:

• grow, deal in, store and move tobacco seed, plant and leaf
• manufacture of excisable tobacco goods , and
• payment of duty for excisable tobacco goods.

The production of excisable tobacco goods such as cut tobacco and cigarettes is controlled by the granting (or refusal) of licenses to manufacture excisable tobacco goods on which the duty has not been paid and deliver them into home consumption.

Excise controls and powers are broadly applicable to goods which are excisable goods. Because tobacco seed, plant and leaf are not excisable goods, special provisions relating to them are contained in the Excise Act to allow similar control to be exercised over them as is exercised over other excisable goods.

The Excise Act imposes strict controls and has penalties for growing, dealing, possession and movement of tobacco seed, plant and leaf without authority.

Grow, deal in and move tobacco seed, plant or leaf

Before you can grow tobacco seed, plant or leaf you need a producer licence granted under the Excise Act. ^[7]

Before you can deal in (that is, buy and sell) tobacco seed, plant or leaf you need a dealer licence granted under the Excise Act. ^[8]

Before you can move tobacco seed, plant or leaf you need permission granted under the Excise Act. ^[9]

Manufacture of excisable tobacco goods

Before you can manufacture tobacco goods you need a manufacturer licence granted under the Excise Act. ^[10]

Tobacco goods are deemed to have been entered and delivered into home consumption when they are manufactured. ^[11]

Unlike other excisable goods, a storage licence under the Excise Act ^[12] cannot be granted to store excisable tobacco goods

Consequently, you do not need a permission granted under the Excise Act ^[13] to remove excisable tobacco goods once manufactured.

	For more information about the excise licensing regime, refer to Chapter 2 - Licensing: Applications.
	For more information about movement permissions for tobacco seed, plant, or leaf, refer to Chapter 5 - Movement permissions.

Payment of duty for excisable tobacco goods

The Excise Tariff Act imposes duty when excisable tobacco goods are manufactured. The Excise Act 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 tobacco goods.

In general terms, duty must be paid on tobacco goods:

• at the time the goods are manufactured and deemed entered and delivered into home consumption.

For more information about payment of duty refer to Chapter 6 - Payment of duty.

1.2.3 Excise Regulations

The Excise Regulations set out provisions in relation to tobacco such as:

• the circumstances allowing refunds, remissions and drawbacks
• the period for making refund applications
• amount of duty for tobacco leaf related penalties

The regulations also include rules specific to the tobacco industry in relation to delivering tobacco leaf for specific purposes.

For more information about remissions, refunds and drawbacks refer to Chapter 7 - Remissions, refunds, drawbacks and exemptions.

1.3 Who administers excise?

The Commissioner of Taxation has the general administration of the Excise Act and the Excise Tariff Act. ^[14] This means you have to deal with us for Australian manufactured tobacco goods but also in relation to any tobacco seed, plant, or leaf whether it comes from Australia or elsewhere.

Imported tobacco goods are not subject to control under the Excise Act unless used in the further manufacture of excisable goods. Customs duty, under the Customs Act 1901 (Customs Act) and Customs Tariff Act 1995 (Customs Tariff Act), is applied to imported tobacco goods at rates equivalent to the excise duty applied to locally manufactured tobacco goods.

The Department of Home Affairs (Australian Border Force) is responsible for administration of the Customs Act and Customs Tariff Act.

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

	Australian Border Force	Tax Office
Australian tobacco seed, plant or leaf	No	Yes
Imported tobacco seed, plant or leaf	Yes	Yes (after it has been released from Australian Border Force control)
Australian manufactured tobacco goods	No	Yes
Imported tobacco goods not for further manufacture in Australia	Yes	No
Imported tobacco products for further manufacture in Australia	Yes	Yes

1.4 When am I involved in the excise system?

You are involved in the excise system if you:

• Produce tobacco seed, plant or leaf
• Deal in tobacco seed, plant or leaf
• Manufacture tobacco goods (excisable goods).

1.5 What do I do if I need more information?

If you need more information on excise, as it relates to tobacco, contact us:

• 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.

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.

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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).