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CONTENTS
Excise Tariff Amendment Bill (No. 1) 1997
Date Introduced: 5 March 1997
House: House of Representatives
Portfolio: Industry, Science and Tourism
Commencement: Formal provisions and item
5 of the Schedule commence on Royal Assent. Items
1 and 2 of the Schedule are to be taken to have commenced
on 3 February 1996, item 3 of the Schedule will
commence on 1 August 1996 and item 4 will commence
on 3 February 1997.
The Bill will substitute new items into the Excise Tariff
Act 1921 that will retrospectively ensure that the amount of
excise collected on certain alcoholic beverages is valid. The Bill
will also ensure that excise is payable on such beverages in the
future.
The rationale given by the Government in the Second Reading
Speech to the Bill for the proposed amendments is:
In November 1994, Carlton and United Breweries (CUB) commenced
the manufacture of the product known as 'Subzero Alcoholic Soda'.
At that time, the beverage was made from spirit obtained from the
de-alcholisation of beer and had approximately 5.5% alcohol
content. The Australian Customs Service (ACS) considered 'Subzero'
excisable under sub-item 2(H) of the Schedule to the Tariff Act as
a spiritous beverage. CUB appealed the decision of the ACS to the
Administrative Appeals Tribunal (AAT).
On 7 June 1996, the AAT determined that the production of
'Subzero', with such a low alcohol content by volume, could not be
described as spiritous and was therefore not excisable under
sub-item 2(H). The decision was based on what the AAT considered is
commonly regarded as the definition of 'spirit' in the community,
which is a strong alcoholic liquor usually containing not less than
37% alcohol by volume.
The ACS is also appealing this decision in the Federal Court and
has continued to impose excise duty under sub-item 2(H) on all
other similar low alcohol beverages.
In order to ensure the continuing exciseability of all beverages
containing distilled alcohol, it is proposed to amend the Tariff
Act to:
(i) delete all references to 'spiritous beverages' in the
Schedule and item 2 (item 1 of Schedule 1 refers); and
(ii) clarify that excise liability is imposed upon all beverages
which contain distilled alcohol (except fortified wine)(new
sub-item 2(H), item 2 of Schedule 1 refers).
By removing the term 'spiritous' from the present sub-item 2(H),
this will remove any connotation as to the strength that an
alcoholic beverage must be before it will be excisable. All such
beverages will continue to be excisable regardless of their alcohol
content and the excise duty will be calculated according to the
alcohol content of the beverages.
On 13 May 1997 the Bill was referred to the Senate Economics
Legislation Committee. The report of the Committee was presented in
the Senate on 18 June 1997.
Industry submissions to the Committee were without exception
opposed to the Bill. Bodies opposing the Bill included: the
Distilled Spirits Industry Council of Australia Inc; the Bundaberg
District Tourism and Development Board; United Distillers Australia
Ltd; the Institute of Chartered Accountants; the Law Council of
Australia; and the Bundaberg Distilling Company Pty Ltd.
The spokesperson for the Distilled Spirits Industry Council of
Australia Inc in evidence to the Committee stated:
The bill arbitrarily reimposes excise on one market competitor
that is, pre-mixed spirits whilst direct competitors with different
alcohol bases, designer drinks, and wine coolers remain
non-excisable. Moreover, the bill establishes unequivocally for the
first time that excise is only to be levied on the distilled spirit
component of pre-mixed drinks. All manufacturers are now looking at
ways of reformulating their products so that less spirit is
incorporated.(1)
Submissions to the Committee from United Distillers (Aust.)
Limited (UDA) listed a number of consequences of the Bill,
including:
- continued tax loophole for 100% fermented P5 designer drinks
which would not be subject to any excise tax, but would impose
excise duty at the full spirit rate on a P5 product which as been
produced by distillation;
- a significant tax incentive for spirits manufacturers to
develop 'hybrid' products to reduce excise payments; and
- it will encourage imports of hybrid alcohol products and this
will impact adversely on Australian investments and Australian
producers from pursuing export markets in Asia.(2)
While recommending that the Bill be passed, the Majority Report
of the Committee recommended that the Government undertake an
immediate review which should look at the equity of tax treatment
between ready to drink products and designer drinks in the P5
category with particular reference to:
- the social effect on consumption patters caused by the
differential taxation treatment according to the production method
of the alcohol;
- potential loss of government revenue with a change to the use
of different forms of alcohol (other than distilled spirits) in
ready to drink products; and
- the possibility of introducing common taxation treatment for
ready to drink products with an alcohol content of 5% or less and
those above 5%.(3)
Two Minority Reports were presented in respect to the Bill. The
Australian Labor Party in its Minority Report recommended that the
Government use the opportunity of this legislation to address the
anomalies contained in the current excise regime. The Australian
Democrats in their Minority Report indicated that they would seek
to amend the Bill, or support amendments to the Bill, which meet
the most significant of the problems identified.
Item 2 of Schedule 1 of the Bill will
substitute a new item 2 into the Schedule of the Excise Tariff
Act 1921 (the Principal Act) to insert a list of beverages
containing spirits that are subject to excise. The main change
between the current item 2 and the proposed item 2 is that the new
Item contains a reference to 'beverages (other than beverages
comprised solely of fortified wine) containing distilled
alcohol'.
Items 3 and 4 of Schedule 1 also substitute new
item 2 into the Principal Act. The reason for the multiple new item
2 is that they will have effect from 3 February 1996, 1 August 1996
and 3 February 1997. This reflects the indexing of the rate of
exercise every six months and the desire to have the amendments
applying from February 1996.
The Bill was amended in the Senate to insert a further item 2
that will have effect from the day the Bill receives Royal Assent.
The proposed item differs from the other proposed items in that for
beverages containing distilled alcohol a lower rate will apply
where the alcohol is attributable to brandy and different rules
will apply where the beverage falls within Food Standard P5. (Food
Standard P5 deals with alcoholic beverages not dealt with in the
other categories of Part P of the Food Standards. The other
categories in Part P are beer, wine, spirits and liqueurs,
sparkling wine and fortified wine.)Where a drink falls within P5,
it will be subject to a rate of excise approximately 50% lower
where they do not contain more than 5% alcohol.
Item 5 of Schedule 1 provides that if excise is
payable on alcohol after 3 February 1997 the amount of excise is to
be determined according to the amendments made by this Bill even if
an application for review has been made to the Administrative
Appeals Tribunal (AAT), an application has been made for a refund
or court proceedings have been commenced in regard to the excise
payable. However, if the AAT has made a determined and a refund has
been paid, no action is to be taken to seek to recover the amount
refunded.
- Senate Economics Legislation Committee, Excise Tariff
Amendment Bill (No. 1) 1997, p. 5.
- Ibid., at p. 6.
- Ibid., at p. 12.
Chris Field & Ian Ireland
31 October 1997
Bills Digest Service
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ISSN 1328-8091
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