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Bills Digest No. 155  1999-2000
Excise Amendment (Alcoholic Beverages) Bill 2000

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Passage History

Date Introduced: 6 April 2000

House: House of Representatives

Portfolio: Treasury

Commencement: 1 July 2000

Purpose

To amend the Excise Act 1901 (Excise Act) to give effect to the administrative arrangements for the collection of excise for alcoholic beverages not currently subject to excise.

Background

An excise is a tax on goods levied at some point in their production or distribution which has the effect of increasing the price of goods supplied to the customer.⁽¹⁾ An excise duty is levied on only a few domestic commodities, for example beer and potable spirits, tobacco and petroleum products. Most of the rates of duty are adjusted regularly in line with the Consumer Price Index. Under section 90 of the Constitution, the Commonwealth Parliament has exclusive legislative power over excise taxation. The Excise Act and Regulations provide the regulatory and administrative framework for the collection of excise, while the Excise Tariff Act 1921 imposes the excise duty.

Currently, sales tax is imposed on alcoholic beverages. There are three categories of alcoholic beverages for the purposes of sales tax legislation:

1. Wine, cider and other similar beverages. The definition of 'other similar beverages' extends to goods such as wine coolers, mead, perry, sake and even vegetable wine, but beer and spirits are specifically excluded.
2. Low-alcohol wine, which is defined as containing not more than 1.15% by volume of alcohol.
3. Other beverages not covered by categories 1 and 2. This includes beer and spirits.

Since 1993 the rates of tax imposed on alcoholic beverages have been subject to significant change. The following table summarises the details of these changes.⁽²⁾

Section 15A of the Sales Tax (Exemptions and Classifications) Act 1992 imposes an additional 15% sales tax on alcoholic beverages other than low-alcohol wines from 8 August 1997. The extra 15% is passed on to the States and Territories to replace the revenue they lost following the High Court decision in Ha v The State of NSW.⁽³⁾ In that case, the High Court held that certain business franchise fees imposed by the States were invalid under section 90 of the Constitution.

On 13 August 1998 the Treasurer announced a number of changes to the taxation of alcoholic beverages. The announcement was included in the Government's proposal for a new tax system entitled Tax Reform: not a new tax, a new tax system.⁽⁴⁾ In this document, the Treasurer announced the removal of wholesale sales tax and said that from 1 July 2000:

• Wine, and beverages consisting primarily of wine, will become subject to a Wine Equalisation Tax to replace the difference between the current 41 per cent wholesale sales tax and the proposed GST. The Wine Equalisation Tax will be levied at such a rate that the price of a four-litre cask of wine need only increase by the estimated general price increase associated with indirect tax reform; ie 1.9 per cent. The concessional taxation treatment of the alcohol content of cask wine will therefore be preserved.
• The excise on beer, and other beverages with less than 10 per cent alcohol content, will be increased to make up for the removal of the present 37 per cent wholesale sales tax. An excise will be imposed on drinks such as alcoholic cider. However, the change in excise will be limited so that the retail price of a carton of full strength beer need only increase by the estimated general price increase associated with indirect tax reform.
• To continue support for the production of low alcohol beer, the Government will increase the excise-free threshold for beer, from the present level of 1.15 per cent, to 1.4 per cent. This will mean that the retail price of a carton of low alcohol beer should not increase and, in some cases, may fall slightly. This will increase the price differential between full strength and low alcohol beer.
• The excise on beverages other than wine, with more than 10 per cent alcohol content, such as spirits and liqueurs, will rise to offset the removal of the wholesale sales tax. The change in excise will be limited such that the retail price of whisky, which is currently heavily taxed, will not need to change. The brandy excise rate will increase but remain below the rate applying to other spirits.

The effect of the Government's announcement is to bring all Australian made alcoholic beverages, other than those which are subject to the Wine Equalisation Tax (WET), within the excise regime. To implement these changes, the Government has foreshadowed a package of legislative changes of which this Bill is the first step.⁽⁶⁾ Other proposed changes include:

• alterations to the Excise Tariff Act 1921 (Tariff Act) to adjust the tariff rates of alcohol products to offset the removal of the wholesale sales tax, and to include all Australian made alcoholic beverages, other than those subject to the WET, in the Schedule to the Tariff Act, and
• amendments to the Excise Regulations to extend the licensing provisions and other requirements to alcoholic beverages not previously subject to excise.

New Excise Duty Rates for Alcoholic Beverages

On 10 May 2000 the Government announced new Alcohol Excise Rates. The new excise duty rates from 1 July 2000 are to be as follows:-

Source: Australian Taxation Office, Fact Sheet, 'New alcohol excise rates', 10 May 2000⁽⁷⁾

¹ calculated on the amount by which the alcohol content (by volume) exceeds 1.15 per cent

² to be defined in the Excise Tariff Act

³ Most newly excisable products are expected to come under this category.

The Australian Democrats have stated that the rise in all beer prices should be limited to 1.9 per cent because of comments made by the Prime Minister, Mr Howard, during the 1998 election campaign.⁽⁸⁾ According to press reports, the Democrats plan to disallow Government Regulations increasing the excise on beer.⁽⁹⁾ The Government has responded that the 1.9 per cent rise in beer prices outlined in the tax reform package applied only to carton beer, and that the higher price for poured beer reflects the service component of across the bar beer sales, in line with expected price increases of between 7 and 9 per cent in hospitality generally.⁽¹⁰⁾

Main Provisions

Items 1-3 amend definitions in the Excise Act to enable excise duty to be collected on all Australian made alcoholic beverages, other than those subject to the WET. Item 2 inserts a new definition of 'other excisable beverage'. This term is not yet defined in the Tariff Act. The Explanatory Memorandum states that the Government intends to introduce a Bill amending the Tariff Act later in the year.⁽¹¹⁾

Section 24 of the Excise Act deals with goods for use in manufacture. The effect of the changes proposed by items 4 and 5 is to provide additional circumstances and conditions for goods subject to excise and customs duties to be used in the manufacture of excisable goods. According to the Explanatory Memorandum, these amendments have been brought about by the need to cater for hybrid ready-to-drink alcoholic beverages that have emerged in the market place in recent times.⁽¹²⁾

The effect of item 6 is to extend the conditions applying to the entry for home consumption of spirits to other excisable beverages. These conditions, which are enumerated in subsections 58(4) and 58(5) of the Excise Act, state that spirits must not be entered for home consumption unless:

• the spirit has been repackaged in containers other than bulk containers, or
• the spirit is entered for a purpose for which a free rate of duty applies, or
• the Chief Executive Officer of the Australian Customs Service (CEO), by notice in writing, permits the spirit to be entered packaged in bulk containers. In this case, the containers must not have a capacity greater than 20 litres (or such other volume as the CEO approves in writing (item 7)), and the CEO is satisfied that the spirit will not be repackaged in any other container for the purposes of retail sale.

Item 7 gives the CEO the authority to permit certain alcoholic beverages to be entered into home consumption in bulk containers that have a capacity of more than 20 litres. Item 8 allows the CEO's decision to be reviewed by the Administrative Appeals Tribunal.

Endnotes

1. Capital Duplicators Pty Ltd v Australian Capital Territory (No. 2), (1993) 173 CLR 561.
2. Australian Master Tax Guide 2000, CCH Australia Limited, 2000, p.1502.
3. Ha and Another v State of New South Wales & Others and Walter Hammond & Associates v State of New South Wales & Others (1997) 71 ALJR 1080.
4. Tax Reform: not a new tax, a new tax system: the Howard Government's plan for a new tax system, circulated by the Hon Peter Costello MP, August 1998.
5. ibid., p. 87.
6. Explanatory Memorandum, Excise Amendment (Alcoholic Beverages) Bill 2000, p. 3.
7. http://www.taxreform.ato.gov.au/factsh/2000/nat3277/index.htm
8. 'Democrats give beer drinkers something to shout about', Sen Meg Lees, Media Release, 00/232, 27/4/2000.)
9. 'Democrats vow to flatten beer price rise', Paul Cleary, Australian Financial Review, 29 April 2000.
10. Hon Peter Costello, Transcript of Press Conference: Consumer Price Index, Friday 28 April 2000, p. 4; 'Democrats skittle PM's tax on beer', by Stephen Spencer, The Age, 28 April 2000.
11. Explanatory Memorandum, Excise Amendment (Alcoholic Beverages) Bill 2000, p. 3.
12. ibid., p. 5.

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ISSN 1328-8091
© Commonwealth of Australia 2000

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