Bills Digest No. 147 2001-02
Diesel Fuel Rebate Scheme Amendment Bill
2002
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.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Diesel Fuel Rebate Scheme Amendment Bill
2002
Date Introduced: 16 May 2002
House: House of Representatives
Portfolio: Treasury
Commencement: Day of Royal Assent
Purpose
To extend
eligibility for rebate of the excise on diesel under the Diesel
Fuel Rebate Scheme (DFRS) to retail and hospitality businesses that
use diesel to generate power when they do not have access to mains
electricity.
The DFRS provides a full rebate of excise and
customs duty on diesel (and like fuels(1)) used off-road
for particular activities. Since 1 July 2000, the use of diesel in
the following activities has been eligible for rebate subject to
certain exemptions:
-
- in mining operations (otherwise than for the purpose of
propelling any vehicle on a public road)
-
- in primary production (otherwise than for the purpose of
propelling a road vehicle on a public road)
-
- in rail transport (otherwise than for the purpose of propelling
a road vehicle on a public road) in the course of carrying on an
enterprise
-
- in marine transport (otherwise than for the purpose of
propelling a road vehicle on a public road) in the course of
carrying on an enterprise
-
- at residential premises to generate electricity used in
providing food and drink, lighting, heating, air-conditioning, hot
water or similar amenities for, or meeting other domestic
requirements of, residents of the premises at a hospital or nursing
home or at any other institution providing medical or nursing care
or at a home for aged persons.
Current rebate rates are 38.143 cents per litre
(cpl) for diesel and 7.557 cpl for like fuels.
Legislative authority for the DFRS is section
78A of the Excise
Act 1901, section 164 of the Customs
Act 1901, and the regulations under those Acts.
The Australian Taxation Office administers the scheme.
The scheme's origins lie in the time when fuel
excise revenue was earmarked to fund road construction. All diesel
used off-road was exempt from excise. However, this (Exemption
Certificate Scheme) was abused. To halt the abuses, the Fraser
Government, in the 1982 Budget, announced that the exemption would
be abolished and a rebate paid in its place for the off-road use of
diesel in certain activities. (2)
A feature of this scheme and subsequent variants
was that the scheme did not apply to all off-road activities. The
scheme thus discriminates in favour of some activities and against
others. In 1998, the Government under A New Tax System
(ANTS) announced its intention to extend the scheme to include all
off-road business use of diesel. However, following negotiations
with the Australian Democrats to have the Senate pass the ANTS
legislation, the scheme was extended to only rail and marine
transport. Further, a full rebate was extended to activities that
were previously eligible for only partial rebate, eg mining and
residential activities. The scheme was also extended to include
rebates for like fuels. So the situation remains that some
activities are eligible for rebate but others are not.
The second reading speech states that the
Bill:
gives effect to a policy initiative announced by
the Government during the 2001 election campaign
This policy, as set out in Securing
Australia's Tourism Future, states:
Another measure which will help tourism
operators is the extension to the Diesel Fuel Rebate Scheme. A
re-elected Coalition Government will extend the eligibility for the
Diesel Fuel Rebate Scheme to small retail/hospitality businesses
producing their own electricity from diesel, provided there is no
access to grid power. Businesses such as caravan parks, tourist
resorts and road houses will benefit from the Scheme which will
cost $80 million over four years.
As noted, the DFRS is selective in that only
some activities are eligible for rebate. Industries that use diesel
in off-road activities but are not eligible have, not surprisingly,
sought to have the scheme extended to include their activities.
This is evident in some of the
industry submissions to the Fuel Taxation Inquiry. For example,
the Association of Marine Park Tourism Operators argued for:
-
- extending eligibility under the DFRS to diesel acquired by
Bareboat charter operators in the course of their business
-
- the expansion of concessions to remote power generation for
resort operators without access to alternative energy sources,
and
-
- the expansion of the concessions to include petrol used in
marine vessels in situations that are identical to those where the
existing diesel fuel rebate operate.
The anomalies, administrative complications, and
incentives to which selectivity of activities gives rise are
described in the Department of Transport and Regional Services'
submission to the Fuel Taxation Inquiry:
The existing arrangements maintain diesel tax
for business users in some sectors. Under the DFRS where some
industries, such as construction, are required to pay significantly
more for diesel used off-road than most other industries, there are
also incentives to misreport fuel usage to avoid fuel tax.
Misreporting, fuel mixing with solvents (eg toluene) and fuel
substitution (eg use of heating oil as transport fuel) are some
examples. The development of new fuels may create additional
opportunities for fuel mixing/substitution both legal and illegal -
to take advantage of differences in excise rates between sectors
and fuels.
The application of off-road rebates to some
sectors and not others also results in anomalies. For example,
diesel for domestic electricity generation is rebated (under DFRS),
but if members of small communities combine to more efficiently
generate electricity they are no longer eligible for the rebate.
The rebate which they pay goes towards funding the Remote Renewable
Power Generation Program (administered by the Australian Greenhouse
Office) which is designed to subsidise the purchase of renewable
power generating facilities in off-grid communities. Under the way
in which Program money is allocated, however, not all communities
who pay excise will benefit from the Program in the form of
subsidies for renewable energy infrastructure.
The DFRS also raises equity issues. For example,
the costs of running power generation for small mixed retail
businesses in isolated regions not connected to the power grid are
significant, and excise imposts can further disadvantage already
isolated and poorly serviced communities.
In recognition of this, the Government has made
a commitment to extend the DFRS to small retail/hospitality
businesses producing their own electricity from diesel, provided
there is no access to grid power. It is intended that businesses
such as caravan parks, tourist resorts and road houses will benefit
from the extension.
Rail uses diesel or electricity almost
exclusively. It currently receives the full rebate of fuel tax
under the DFRS for fuel used off-road. However, diesel usage in
rail terminals is not rebated despite terminals not being part of
publicly maintained road networks. Most rail operators also operate
and maintain terminals to transfer goods from rail to road for
collection by the customer. This requires them to maintain separate
records of diesel usage on rail and in terminal (eg for operation
of fork-lifts and other equipment to transfer containers from
trains to trucks), adding to administration costs.
The Department would encourage the Inquiry to
consider the merits of extending off-road business fuel tax rebates
on diesel to those sectors and off-road activities that do not
currently benefit from rebates.
The anomalies in the DFRS also distort the
allocation of resources. As Treasury noted in its
submission to the Fuel Taxation Inquiry:
There are a number of anomalies within the
current DFRS which mainly revolve around industries that remain
ineligible for the rebate. For instance mining operations are
eligible for a rebate while quarrying and dredging are not;
electricity generation at commercial premises is not covered,
although private premises are; and manufacturing and construction
industries continue to remain ineligible. The DFRS also
discriminates between activities within an industry.
Due to the anomalies within the current scheme,
the overall effects of the DFRS on resource allocation are varied.
The DFRS assists in removing the distortionary effects of excise on
eligible activities that use diesel (and like fuels) as an
intermediate input, which has a positive effect on resource
allocation. But due to the anomalies outlined above, the DFRS also
contributes to the inefficient allocation of resources between
industries. The discrimination between industries and activities
within an industry result in non-eligible industries and activities
not being compensated for the negative effects of excise on their
intermediate inputs. In addition, the DFRS also distorts resource
allocation as it provides a price incentive to use diesel (or like
fuels) over petrol (and other fuels not covered).
In short, while the proposed extension of the
DFRS to retail and hospitality businesses would remove some of the
scheme's anomalies, the extension does not address other anomalies.
Consequently, the scheme will continue to discriminate among and
within industries. A less piecemeal approach to the DFRS than
contained in this Bill would address remaining anomalies. Such an
approach is contained in the Fuel
Taxation Inquiry, whose main recommendations the
Government rejected. Among the reasons the Government gave for
its decision are:
-
- taxing fuels on their relative energy content would violate its
election commitment to maintain excise exemptions for fuel ethanol
and biodiesel
-
- acceptance of the recommendations would violate the
Government's undertaking with the Australian Democrats to restrict
full rebates to certain classes of on and off-road use, and
-
- the Government would not terminate the Fuel Sales Grants Scheme
and the Petroleum Products Freight Subsidy Scheme because they
assist consumers in regional and remote areas.
Schedule 1
Proposed clauses 1 and
6 respectively amend the Customs Act 1901
and the Excise Act 1901. These clauses contain identical
wording and define eligibility conditions. The clauses provide that
where a business ('enterprise'), whose principal function is
retailing or the provision of hospitality, uses fuel to generate
electricity used in the business and that business does not have
access to mains electricity ('commercial supply of electricity'),
that business is eligible to receive a full rebate. However,
proposed clause 3 defines retail sale to exclude
the retail sale of electricity. Paragraph 1.7 of the Explanatory
Memorandum indicates that this clause was inserted to exclude
businesses, whose principal function is to sell electricity, from
being defined as a retailer to ensure that they are ineligible to
claim a rebate.
Proposed clauses 2 and
7 respectively amend the Customs Act 1901
and the Excise Act 1901. These clauses also contain
identical wording, and provide that the amount of the rebate is the
same as if retailers and hospitality providers were primary
producers.
Sections 164AC(5) of the Customs Act
1901 and 78AD(5) of the Excise Act 1901 deal with the
audit of diesel fuel rebate applications. Proposed clauses
4 and 9 respectively amend these sections
and empower an officer to examine the premises of retail and
hospitality businesses claiming a rebate. However, the officer can
examine residential premises only with the occupant's consent and
only if the rebate relates to fuel bought for use at the
premises.
Proposed clauses 5 and
10 limit the availability of the rebate to fuels
bought on or after 1 July 2002.
This Bill is an example of 'fiddling at the
edges' policy. By rejecting the recommendations of the Fuel
Taxation Inquiry, the Government has passed up an opportunity to
bring long-overdue rationality to fuel taxes. The financial press
has been critical of the Government's rejection of the Inquiry's
recommendations.(3) The Government intends to replace
the DFRS and the Diesel and Alternative Fuels Grants Scheme with
the Energy Grants (Credits) Scheme (EGCS).(4) The
objectives of the EGCS, as set out in the Diesel and
Alternative Fuels Grants Scheme Act 1999, are:
The purpose of the Energy Grants (Credits)
Scheme will be to provide active encouragement for the move to the
use of cleaner fuels by measures additional to those under this
Act, while at the same time maintaining entitlements that are
equivalent to those under this Act and the Diesel Fuel Rebate
Scheme, including for the use of alternative fuels.
The proposed introduction of the EGCS on 1 July
2003 could provide an opportunity to address some of the anomalies
in the DFRS.
-
- Like fuels attract a lower rate of excise than diesel.
- For further background, see 'Petrol and Diesel Excises',
Department of the Parliamentary Library, Research Paper
No. 6, 2000-01, at http://www.aph.gov.au/library/pubs/rp/2000-01/01RP06.htm
- 'Fuel tax fiasco must be fixed', Australian Financial
Review, 21 May 2001, p. 70.
- The commitment to introduce an EGCS is contained in the
Measures for a Better Environment statement of May 1999.
Richard Webb
24 May 2002
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ISSN 1328-8091
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