Bills Digest No. 148 2003-04
Excise Tariff Amendment
(Fuels) Bill 2004
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
Excise Tariff Amendment (Fuels) Bill
2004
Date
Introduced: 1 April
2004
House: House of Representatives
Portfolio: Treasury
Commencement:
The individual parts
of the Excise Tariff Amendment (Fuel) Bill 2004 have
various commencement dates. They are dealt with under the heading
Main Provisions.(1)
The Excise Tariff Amendment
(Fuel) Bill 2004 (the Bill) proposes the following changes to the
Excise Tariff Act 1921:
-
the implementation of a different excise duty rate (EDR) for
ultra low sulphur diesel (ULSD) and high sulphur diesel (HSD),
-
an increase in the excise on aviation fuel to provide additional
funding to the Civil Aviation Safety Authority,
-
the imposition of an excise duty on biodiesel, bringing this
currently untaxed fuel into the existing customs and excise duty
system.
The implementation of EDRs for diesel fuels based on their
different sulphur content was proposed by the Prime Minister in his
Policy Initiative Measures for a Better Environment on 31
May 1999.(2)
The promotion of ULSD by imposing a lower EDR on ULSD and a
higher one on high sulphur content fuels is based on environmental
considerations. The Explanatory Memorandum states
that:
Low sulphur fuels provide environmental and health
benefits through reduced emissions of hydrocarbons and oxides of
nitrogen that affect air quality and particulate emissions known to
cause respiratory problems.(3)
However, the introduction of ULSD alone is not sufficient to
achieve these results. Rather, it is necessary to use certain
engine technology, especially in the form of appropriate catalysts,
to gain the full benefit of ULSD.(4) Accordingly,
critics have argued that whilst the introduction of ULSD was long
overdue, it may not bring the wanted outcome as the average
Australian diesel run car does not have the necessary
technology.(5)
The Government recognises this limitation and has stated that
the facilitation of a broader adoption of greenhouse friendly
engine technology that depends upon low sulphur fuels will be a
subsequent measure.(6)
The proposed changes follow an international trend. Many
countries regulate the sulphur content in diesel.(7)
Currently, the prescribed contents vary from country to country,
ranging between 30 and 150 parts per million ( ppm ). The new
quality standard for diesel fuels attracting the lower EDR in
Australia will be the Euro 4 standard or a sulphur content of less
than 50 ppm.(8)
The introduction of the different EDRs was initially planned for
1 January 2003, with the second stage of the increases for the high
sulphur diesel fuels to be introduced on 1 January
2004.(9) However, the introduction was delayed by the
Government until 1 July 2003 to avoid possible diesel fuel price
increases for farmers facing drought conditions.(10) The
second increase has taken effect retrospectively on 1 January 2004.
As a result, the period between the first and the subsequent EDR
increase for high sulphur fuels has been significantly
shortened.
The increase in excise on aviation fuels, i.e. for aviation
gasoline and kerosene was announced by the Federal Government in
the 2003 2004 Federal Budget and will take effect retrospectively
from 1 January 2004.
The increase is designed to raise additional funds to support
the operation of the Civil Aviation Safety Authority (CASA).
The introduction of an excise duty on biodiesel was announced by
the Federal Government in the 2003 2004 Federal Budget and
introduced as Excise Tariff Proposal No. 4 (2003) and will take
effect retrospectively on 18 September 2003.
Placing an excise duty on this currently untaxed alternative
liquid fuel carries out the Federal Government s commitment to
implement a homogenous excise and customs duty system for all
liquid fuels irrespective of their derivation.(11) This
commitment is the result of a recommendation made by the Fuel
Taxation Inquiry.(12)
Biodiesel is a clean burning alternative fuel which can be
produced from vegetable oils and animal fats by a process called
lipid transesterification . It has similar properties to petroleum
fuels and can be blended with petroleum based diesel fuels at any
rate.(13).
The proposal to impose an excise duty on bio-diesel has been
criticised. It has been argued that the imposition of excise duties
for biodiesel in Australia would raise the price for this
alternative fuel to an extent where it becomes uncompetitive with
the traditional petroleum diesel.(14)
To assist in the prevention of this, the Government has
introduced a grant scheme according to which licensed biodiesel
producers can recover increased costs through
subsidies.(15) The Government stated that:
Grants will then be provided for production or
importation of biodiesel, such that the current effective excise
rate of zero for pure biodiesel is continued, with this being
extended to the biodiesel component of blends, until 30 June 2008.
(16)
However, in the same announcement, the Government explained that
these grants will only be available for a limited period of time
with the grants being phased out in five even annual instalments
from 1 July 2008 to 1 July 2012.
Overseas, the European Commission recently decided to permit the
German Government to exempt bio fuels, including biodiesel, from
fuel taxes.(17) The European Commission accepted that
alternative fuels face particular difficulties competing against
the traditional fuels and allowed Germany to subsidise the
alternative fuel by granting a tax exemption.(18)
The proposed amendments in Schedule 1, Part 1 of the Bill,
introduce different EDRs for diesel by reference to their sulphur
content. Part 1 of the Bill will take effect retrospectively on 1
July 2003.
Item 2 repeals paragraph 6G(1)(b) of the
Excise Tariff Act 1921, substituting it with a new
paragraph (b). This new subsection stipulates different EDRs
applicable to diesel product other than recycled products,
determined by reference to their sulphur content.
Products with a sulphur content below 50 ppm attract the lower
EDR, whilst those products with a sulphur content above this level
attract the higher EDR.
In relation to UDSL the Bill prescribes the current, uniform
level of excise for liquid fuel products, i.e. $0.38143. For fuels
which exceed a sulphur content of 50 ppm, an initial increase of
one cent to $0.39143 per litre is proposed. After this initial
increase, the difference between the excise for products with a
sulphur content below 50 ppm and the excise for products above this
threshold will amount to one cent per litre (Item
7 to Item
14).
The new subsection (b) creates a presumption that the sulphur
content of diesel exceeds the threshold of 50 ppm. Where the lower
EDR for UDSL is claimed, the onus of proof will lie with the
producer of the diesel product to satisfy the collector that the
product s sulphur level is below the threshold of 50
ppm.(19)
Item 4 of the Bill sets out the formula for
calculating the amount of excise duty payable ion diesel or blended
diesel products. In particular the formula provides for the fact
that:
-
the product may contain diesel as well as ethanol or other
substances,
-
different EDRs will apply, depending upon the sulphur content of
the diesel, by implementing a diesel rate into the equation. The
definition of diesel rate distinguishes between ULSD and HSD,
and
-
some of the products and substances contained in the product
already have been subject to excise and customs duties, allowing
the setting off of those as previously paid duties.
The term other substances as used in this formula
is defined to mean substances in the excisable blended petroleum
product that are not either diesel or ethanol . This definition
appears to be broad enough to capture any substance added to the
fuel, even non-excisable substances not being considered an
integral part of the fuel.
Item 5 and
Item 6 set out the formula for
calculating the amount of excise duty payable on emulsified blends
of diesel, water and any other additives.
Part 2 of the Bill puts into place the legislative arrangements
to increase the excise duty on HSD fuels. This increase took effect
on 1 January 2004.
Item 15 to
Item 22 of the Bill increase the
EDR applicable to those products which exceed a sulphur content of
50 parts per million by a further cent to $0.40143 per litre. After
this second increase, the difference between the excise for ULSD
and products above the threshold of 50 ppm will reach two cents per
litre.
Part 3 of the Bill increase the EDRs for aviation fuels. This
part took effect on 1 July 2003.
Item 23 proposes to increase the current excise
rate for kerosene used as aircraft fuel by $0.00306 per litre from
$0.02845 per litre to $0.03151 per litre.
Item 24 and Item 25 increase
the current excise rate for gasoline, other petroleum or shale
spirit, in packages below or above 210 litres, by $0.00306 per
litre from $0.02808 per litre to $0.03114 per litre.
Part 4 of the Bill deals with the introduction of an EDR for
biodiesel and biodiesel products. The new EDR took effect on 18
September 2003.
Item 26 inserts a definition for the term
biodiesel into the Act. Note that the definition is limited to
those biodiesel products that are used as fuel in an internal
combustion engine.
Item 28 inserts subsection (2C) into s.6G of
the Act, providing a formula to calculate the duty payable on
products containing biodiesel products, ethanol and any other
substances. The duty is calculated by applying the relevant EDR to
the volume of the individual product and by deducting previously
paid duties.
Again, the term other substances is defined to mean substances
in the excisable blended petroleum product that are not either
biodiesel or ethanol . This definition appears to be broad enough
to capture any substance added to the fuel, even non-excisable
substances that are not being considered an integral part of the
fuel, such as additives.
Item 30 sets the excise rate for biodiesel to
be $0.38143 per litre.
The amendments proposed in relation to the diesel fuel excise
are designed to encourage production and use of environmentally
friendly diesel fuels. As indicated above, the Government follows
an international trend with this proposal.
Whether the proposal can unfold its full potential in the short
term has to be seen. It seems that engine technology, especially
catalytic converters, are necessary to actually achieve the
reduction in harmful emissions that is the primary goal of the
Government s policy.
The amendments in relation to aviation fuels are proposed to
raise funds for CASA. However, the Government already foreshadowed
in the Explanatory Memorandum that:
The revenue from aviation fuel duty is estimated
to be 11% lower than forecast as a consequence of cessation of
Ansett operations, world wide reduction in air travel demand and
introduction of larger, more fuel efficient aircraft.
The amendments making biodiesel excisable are the result of the
Government s plan to create a homogenous excise system as suggested
by the Fuel Taxation Inquiry. The introduction of the EDR
corresponds with the introduction of the Energy Grants (Cleaner
Fuels) Scheme and should result in a zero-excise rate for those
qualifying for a grant.
-
Note that Part 5 of Schedule 1 will not commence as the
Excise Tariff Amendment Act (No.1) 2004 commenced on 21
April 2004.
-
The Hon. J W Howard, Measures for a Better Environment,
Media Release, 31 May 1999, available on: http://www.pm.gov.au/news/media_releases/1999/changes3105.htm,
accessed 12 May 2004.
-
Explanatory Memorandum, at paragraph 1.3, available at:
http://parlinfoweb.parl.net/parlinfo/Repository/Legis/ems/Linked/08040400.pdf,
accessed 13 May 2004.
-
N H Sweed, R Demmin, H Ryu, Low Sulphur Technology
Research Paper on Hydrocarbon Engineering, July 2002, available on:
http://www.prod.exxonmobil.com/refiningtechnologies/pdf/JulyHESCF.pdf,
accessed on 13 May 2004.
-
A Main, Why Diesel Need not to be a Dirty Word for Greenies ,
The Australian Financial Review, 6 August 2003.
-
Explanatory Memorandum, at paragraph 1.3, available at:
http://parlinfoweb.parl.net/parlinfo/Repository/Legis/ems/Linked/08040400.pdf,
accessed 13 May 2004.
-
N H Sweed, R Demmin, H Ryu, Low Sulphur Technology
Research Paper on Hydrocarbon Engineering, July 2002, available on:
http://www.prod.exxonmobil.com/refiningtechnologies/pdf/JulyHESCF.pdf,
accessed on 13 May 2004.
-
J Dowling, Push to Cut Excise on Cleaner Fuel so it Sells ,
The Sydney Morning Herald, 23 July 2002.
-
The Hon. J W Howard, Measures for a Better Environment,
Media Release, 31 May 1999, available on: http://www.pm.gov.au/news/media_releases/1999/changes3105.htm,
accessed 12 May 2004.
-
T O Loughlin, Farmers, Truckies Fight Diesel Price Rise ,
Financial Review, 19 December 2002; J Gordon, Farmers get
Diesel Tax Reprieve , The Age, 25 December 2002;
Explanatory Memorandum, at paragraph 1.4, available on:
http://parlinfoweb.parl.net/parlinfo/Repository/Legis/ems/Linked/08040400.pdf,
accessed 13 May 2004.
-
The Hon. P Costello, Fuel Tax Reform for the Future,
Press Release No. 31, 13 May 2003, available on:
http://www.treasurer.gov.au/tsr/content/pressreleases/2003/031.asp,
accessed 13 May 2004.
-
D Trebeck, J Landels, K Hughs, Fuel Taxation Inquiry Report ,
Recommendation 1, at p. 29, March 2002, available on: http://fueltaxinquiry.treasury.gov.au/content/report/default.asp,
accessed 11 May 2004.
-
Biodiesel Association of Australia, Biodiesel Fact Sheet,
Biodiesel Fact 1 , available on: http://www.biodiesel.org.au/biodieselfacts.htm#IS;
accessed 11 May 2004.
-
End of Biodiesel in Australia , ReNew, Vol. 86, 2004,
at p. 13.
-
A Martyn, Energy Grants (Cleaner Fuels) Scheme Bill 2003 ,
Bills Digest, No 33, Parliamentary Library Canberra,
2003-2004.
-
The Hon. P Costello, Fuel Tax Reform for the Future,
Press Release No. 31, 13 May 2003, available on
http://www.treasurer.gov.au/tsr/content/pressreleases/2003/031.asp,
accessed 13 May 2004.
-
M Monti, Staatliche Beihilfe N685/02
Deutschland, Mineral lsteuerbefreiung f r Biokraftstoffe
(Subsidy N685 Germany, Petroleum Tax Exemption for Bio Fuels),
European Commission, Brussels, 18 February 2004, at paragraph 10:
http://europa.eu.int/comm/secretariat_general/sgb/state_aids/comp-2002/n685-02.pdf,
accessed 12 May 2004.
-
ibid., at paragraph 18 and 32.
-
The Collector is either the Tax Commissioner (or their delegate)
or someone else who has been authorised to perform a certain
function under the Excise Act 1901.
Thomas John
2 June 2004
Bills Digest Service
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