This Digest was prepared for debate. It reflects the legislation as
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Contact Officer and Copyright Details
Amendment Bill (No. 1) 2000
Date Introduced: 17 February 2000
House: House of Representatives
Commencement: The amendments relating to
tobacco excise are taken to have commenced on 1 November 1999. The
amendments relating to petroleum excise are taken to have commenced
on 15 November 1999. The Bill itself commences on Royal Assent.
The main purposes of the Bill are to amend the
Excise Tariff Act 1921 so as to:
- substitute a 'per stick' rate of tariff on lightweight tobacco
products to discourage smoking of high volume, lightweight
- alter the tariff structure on certain petroleum products to
combat the substitution of these products for higher-excise
Changes to tobacco excise
The Bill is intended to ratify Excise tariff
proposal No. 2 of 1999(1) made on 20 October and tabled
in Parliament on 21 October 1999.(2)
The Federal Government has imposed an excise tax
on tobacco products since 1901.(3) Until 1 November
1999, excise duty was levied principally(4) according to
the weight of the manufactured tobacco product: in the case of
cigarettes, on the total weight of the cigarette.
The weight-based excise system was examined by
the 1995 Senate Community Affairs Committee inquiry The
Tobacco Industry and the costs of tobacco related
illness.(5) The inquiry heard evidence that the
weight-based excise system enabled manufacturers to minimise costs
by reducing the weight of each cigarette and packaging more
cigarettes in larger packs. Submissions by a number of health
groups argued that these types of packs encouraged smokers to smoke
more cigarettes and were comparatively more attractive to price
sensitive smokers including young people and people from lower
socio-economic backgrounds.(6) On the other hand, the
Department of Health Services and Health apparently advised that
'there was no basis' for supporting a change to a per stick regime
from a health perspective and that any such change would involve
'considerable disruption' to the tobacco
Given the conflicting evidence, the Committee
recommended that the National Health and Medical Research Council
be tasked to review the weight-based system for calculating excise.
This recommendation was accepted in the Government's 1997 response
to the Committee's report.(8) This process was however
overtaken by the review of the tax system announced by the
Government in 1998.
In their 1998 submission to the Tax Consultative
Task Force, peak health and medical groups recommended that
the government announce a shift to a per stick
system for excise effective no later than July 2000 and an increase
in tobacco taxes of 5% per annum for at least the next decade,
commencing with a 15% increase in 1998 with consideration given to
establishing a one cent per stick levy on cigarettes to fund a
comprehensive tobacco control program.(9)
The recommendation for a shift to a per stick
regime was incorporated into the A New Tax System (ANTS)
package announced in August 1998. In the ANTS package, the
Government stated that it had
decided not to [increase the tobacco taxes by
15%] but has determined that [changes to excise] will be introduced
in such a way that no cigarette brand will fall in price.
Final details on the implementation of the
revised excise arrangements were released in February
1999.(10) Under these arrangements, the implementation
of the per stick regime was postponed from July to November 1999 to
'enable tobacco manufacturers sufficient time to implement the
required changes.'(11) The deferral was calculated to
cost $140 million in lost revenue.(12) Annual revenue
resulting from the change to the per stick regime is expected to
raise $440 million per year.(13)
Under the revised arrangements, a rate of 18.872
cents per stick applies to all cigarettes with a tobacco content up
to and including 0.8 grams per cigarette. An excise of $235.90 per
kilogram of tobacco applies to all other tobacco products. The
Government has projected that the price of premium brand cigarettes
would 'not fall' but that 'high volume, low weight cigarettes
[would] rise in price'.(14) Recent statements by
industry indicate that cigarettes are likely to rise across the
board by an additional 8-10% with the introduction of the
The Explanatory Memorandum estimates initial
compliance costs for cigarette manufacturers and importers to be
less than $1 million, with negligible on-going
costs.(16) It also notes(17) that retailers
may need to change stock levels in response to a possible fall in
demand for lightweight cigarettes. (18)
The Bill also proposes to insert a definition of
tobacco in the Excise Tariff Act 1921. Tobacco is
a proclaimed material for the purposes of the Excise Act
1901 and producers must be registered and manufacturers must
be licensed with fines of $5,000 for contravention. The purpose of
including the definition of tobacco is to clarify when tobacco leaf
ceases to be proclaimed material under the Excise Act 1901
and becomes an excisable material under the Excise Tariff Act
1921. According to the Explanatory Memorandum, this is 'to
assist in addressing the avoidance of excise through the illicit
manufacture of tobacco'(19) but no details are given.
Changes to petroleum excise tariffs
The Bill is intended to ratify Excise tariff
proposal No. 3 of 1999(20) made on 11 November and
tabled in Parliament on 24 November.(21)
Historically, excise on petroleum products has
been levied at differential rates depending upon the intended end
use of the product. Fuels intended for on-road use, such as diesel
fuel and unleaded petrol have attracted a relatively higher tariff.
Tariffs on fuels sold for non-transport uses, such as heating oils
and kerosene, have been levied at a lower rate, and other products
sold for non-fuel use, such as solvents, have not attracted any
The differential tariff rates have been
exploited to avoid excise duty on transport fuels through the
substitution or unauthorised blending of lower excise petroleum
products. Besides reducing Government revenue, the practice of
blending or substituting fuels for on-road use is potentially
dangerous and can cause damage to vehicle engines.
In 1993 Parliament passed amendments to the
Excise Act 1901 and the Excise Tariff Act 1921 to
address the avoidance issue.(22) These reforms required
all premises, including refineries, service stations and other
businesses that blend petroleum and oil products, to be licensed,
and to pay duty on the blended substances at either the diesel or
leaded petrol rate.
Further legislative changes, which were brought
into effect in January 1998,(23) enabled a chemical
tracer (a marker dye or a colourless marker) to be added to fuels
which attracted concessional rate of excise duty. The purpose was
to make it easier for the Australian Customs Service to detect when
these products are blended with, or substituted for, excisable
In June 1998, the Government described these
measures as 'very successful [resulting in increased revenue of]
around $10 million a month'.(24) In relation to
enforcement, the 1998-99 Customs annual report was a little more
guarded, noting that
prosecution action [under the legislation] was
commenced against three distributors. These will be test cases of
the new legislation, as establishing proof of offences under the
Fuel (Penalty Surcharges) Amendment Act 1997 has
proven to be more difficult than expected. At 30 June, Customs had
22 other matters under investigation with a view to
From July 1999, responsibility for excise
functions, including those relating to fuel substitution matters,
was transferred to the Australian Tax Office.
The changes proposed in the current Bill further
refine the tariff regime, chiefly by:
- eliminating the excise free status of petrol and diesel that
are 'not for use as fuel'
- requiring heating oil to contain a chemical marker
- revising tariff lists in relation to recycled petroleum
Schedule 1 (Tobacco excise)
Item 1 inserts a definition of
tobacco into the Schedule of the Excise Tariff Act
Items 2-4 amend items 6-8 of
the Schedule of the Excise Tariff Act 1921. The amendments
substitute a per stick excise for various stick form tobacco
products (including cigarettes and cigars) where the product
contains not more than 0.8 grams of tobacco per stick. Excise on
other forms, including sticks of more than 0.8 grams tobacco, is
levied at $235.90 per kilogram.
Schedule 2 (Petroleum excise)
Item 1 substitutes a revised
range of definitions and excise classes to item 11 of the Schedule
of the Excise Tariff Act 1921 to combat fuel substitution
as discussed in the Background to this Digest.
Changes to petroleum excise
Industry representatives such as the Australian
Institute of Petroleum have been involved in discussions with the
Government regarding the Bill. It is understood that they support
the changes proposed by the Bill as far as they go. However, it is
unlikely the Bill will assist in combating the recently reported
incidents of operators unlawfully increasing the percentage of
toluene and xylene in petrol sold to motorists through a number of
service stations in Sydney.(26) These substances are not
currently subject to excise and this situation will not change
under the Bill. While excessive amounts of these substances may
breach the relevant Australian Standard, the standard is only
While it is reported that the Australian Tax
Office is currently conducting laboratory tests on suspect fuel,
concerns have also been expressed whether adequate measures are in
place (both at the Federal and State level) to effectively police
the anti-substitution laws.(28) More recently, claims
have been made by petroleum industry representatives that the
Commonwealth has failed to adequately respond to the reports of
ongoing substitution scams.(29)
- See http://www.customs.gov.au/notices/acn99/acn9967.htm
- The Hon Peter McGauran, House Debates, 21 October
1999, p 19095.
- Historical information on governmental policy on smoking,
including regulation, taxation and anti-smoking programs can be
found in Denis James, Current Issues Brief no. 16 1997-98
'Coffers or Coffins? Government Policy on Death from Smoking'. The
1999 National Tobacco Strategy and supporting documents can be
found at: http://www.health.gov.au/pubhlth/strateg/drugs/tobacco/
- Following a High Court Decision in 1997 that held that the
States and Territories did not have the power to levy tobacco
franchise fees, the Commonwealth's tariff structure was changed to
include an ad-valorem component as a way of compensating the States
and Territories for lost revenue.
- Report of the Senate Community Affairs Reference Committee,
December 1995. See
- Ibid, paragraph 2.76, p 51.
- Ibid, paragraph 2.82, p 52.
- For details and discussion regarding the Governments response
see Senate Debates, 3 September 1997 pp 6334-6366.
- Australian Cancer Council and Heart Foundation, 'Federal Excise
on Tobacco' Submission to the Tax Consultative Task Force,
1998 p 2.
- The Hon Peter Costello, Press Release, 'Reform of
Tobacco Taxation' 3 February 1999.
- 1999-2000 Budget, Budget Paper No. 2 p 19.
- The Hon Peter Costello, op cit.
- AAP Report, 'Cigarettes to rise 8-10 pct after GST: Tobacco
boss' 29 February 2000.
- Excise Tariff Amendment Bill (No. 1) 2000, Explanatory
Memorandum, p 7.
- For industry reaction to the tax change see AAP, 'Tax rises a
drag for tobacco companies, Australian Financial Review 5
February 1999 p 55; John Durie, 'Tobacco companies split on
weightless tax' Australian Financial Review 8 February
1999 p 4; Sean Aylmer 'Small Business profits at risk',
Australian Financial Review 21 April 1999 p 4; Graeme
Brien 'Excise plus GST puff up profits' (letter to editor)
Australian Financial Review 27 April 1999 p20.
- Explanatory Memorandum, op cit. p 4.
- See http://www.customs.gov.au/notices/acn99/acn9967.htm
- The Hon Larry Anthony, House Hansard, 24 November
1999, p 2472.
- For background see Bills Digest no.34 1997-98, Excise
Tariff (Fuel Rates Amendments) Bill 1997. See http://www.aph.gov.au/library/pubs/bd/1997-98/98bd034.htm
- This was through a package of seven Acts, notably the
Excise Tariff (Fuel Rates Amendments) Act 1997.
- The Hon Warren Truss, Answer to question without notice,
House Debates, 22 June 1998 p 5015.
- Australian Customs Service, Annual Report 1998-99, p
- Peter McKay, 'Motoring - Fuel's Gold' Sydney Morning
Herald 19 February 1999 p 65. These substances are normally
found in fuel, but only in relatively small quantities.
- Standards Australia, 'Too much toluene may breach Australian
standards', News February 2000. See
- McKay, op cit.
- AAP Report, '40 Servos hit by petrol scam' 2 March 2000.
3 March 2000
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