Bills Digest no. 144 2005–06
Excise Laws Amendment (Fuel Tax Reform and Other
Measures) Bill 2006
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 Laws Amendment (Fuel Tax
Reform and Other Measures) Bill 2006
Date introduced: 11 May 2006
House: House of
Representatives
Portfolio: Treasury
Commencement: As per the table in clause 2. In most instances, the
commencement date is 1 July 2006.
To amend or repeal several Acts to effect the Government s
proposals with respect to excise contained in the energy white
paper, and to simplify and update legislative requirements relating
to excise especially those in the Excise Act 1901.
Excise is a tax levied on certain goods produced in Australia.
The main goods from which excise duty revenue derives are petroleum
and other fuel products, crude oil, alcoholic beverages, and
tobacco. Excise is levied for three (not mutually-exclusive)
reasons. The main reason is to raise revenue. The second is to
influence consumer behaviour; this consideration underlies excise
on tobacco and alcohol where excise is levied partly to limit
consumption. Cost recovery is the third reason; the excise on
aviation fuels is an example.
Section 90 of the Constitution gives
the Commonwealth exclusive power to impose excise. The producer of
the good is legally liable to pay excise. Excise is levied under
the Excise Tariff Act 1921 (the Excise Tariff Act) and the
Excise Act 1901 (the Excise Act). The goods subject to
excise and the rates are listed in the Excise Tariff, which is
Schedule 1 to the Excise Tariff Act. The Australian Taxation Office
(ATO) administers excise.
On 15 June 2004, the Government released the energy white paper
titled Securing
Australia s Energy Future. The white paper proposed, among
other things, a fuel tax credits scheme to replace the Energy
Grants Credits Scheme and other concessions from 1 July 2006, and
changes to excise rates. Background to the fuel tax credits scheme
can be found in the Bills Digest for the Fuel
Tax Bill 2006.
As part of the reforms proposed in the energy white paper, the
Government decided to remove the excise on burner fuels (fuels used
other than in an internal combustion engine such as kerosene used
to heat houses). The Australian Taxation Office (ATO) has
noted:
The decision to remove the effective excise on burner fuels as
part of the fuel excise reforms presented the Australian Government
with an opportunity to review the entire schedule to the Excise
Tariff Act 1921.The review, announced in June 2005, was aimed
at reducing compliance costs for excise manufacturers and other
excise stakeholders, importers and administering authorities.
Overall, the changes resulting from the review are designed
to:
streamline the schedule and make it more user friendlymake
excise law clearer and less complex, andimprove the integrity of
the excise system.(1)
The review was contained in the Treasury paper titled
Review of the Schedule to the Excise Tariff Act. Industry
Discussion Paper. The review which was the most
comprehensive for many years proposed wide-ranging changes to the
Excise Tariff Act, principally to the Excise Tariff. The Excise
Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006
implements the outcome of the review (see the Bills Digest for this
Bill for additional background).
The bulk of the Excise Laws Amendment (Fuel Tax Reform and Other
Measures) Bill 2006 (the Bill) is directed towards amending the
Excise Act. The Bill also repeals redundant legislation. The
amendments reflect two main factors. The first is the need to
implement the fuel tax credits scheme. As the Minister noted in his
second reading speech:
This bill makes changes to the Excise Act 1901 so that
the mechanism for fuel tax relief for eligible users is through the
fuel tax credit system, legislated through the Fuel Tax Bill 2006,
and not through concessions within the excise system.
The Government s reforms also render several Acts redundant. In
particular, the Excise Act 1901 contains provisions that
are redundant or need updating.
The Explanatory Memorandum contains the following summary of the
current law and proposed new law.
New law
|
Current law
|
|
The requirement to prescribe circumstances where
excisable and imported inputs may be used in excise manufacture
will be removed. The ability to prescribe if necessary will be
retained.
|
Excisable and imported inputs to excise
manufacture may be used only in prescribed circumstances and
subject to prescribed conditions.
|
|
Fuel blending is considered blending unless the
resulting blend is carved out.
A new section of the Excise Act will specify
fuel blends that are not captured by the excise tariff. If blending
results in a product that can not be used as a fuel, it will be
carved out, either directly or via a determination under the Fuel
Tax Bill 2006.
|
Fuel blending is considered excise manufacture
except in circumstances listed as exempt in the
regulations.
|
|
Regulations can be made to limit movement
permissions granted by the Commissioner of Taxation (CEO) where
duty has not been paid (on fuel).
|
The CEO can give permission for excisable goods
on which duty has not been paid to be moved from one place to
another place.
|
|
All excise licences expire. When first issued
the expiry date is 31 March, two years after the initial issue with
continuation permitted pending a decision to renew. Renewal is for
three years. Additional guidance is provided to the CEO when
considering applications for licences.
|
There are inconsistent validity periods for
different classes of excise licences. For example, manufacturer
licences expire each year, while others such as tobacco growers
licences have no expiry date.
|
|
A streamlined provision will enable rules to be
determined for measuring the volume, weight or alcoholic strength
of an excisable good.
|
Complex provisions govern the measurement of
volume and strength of beer and alcoholic beverages
only.
|
|
To protect the revenue, all persons who have had
possession, custody or control of tobacco leaf can be asked to
satisfactorily account for it and pay an amount equal to the excise
duty that would have been paid had the deficient leaf been
manufactured into excisable tobacco.
|
Producers and dealers can be asked to account
for tobacco leaf and pay excise duty on any
deficiencies.
|
|
To protect the revenue, bottling of duty-paid
bulk beer is excise manufacture to prevent lower excise liability
applying.
|
Bulk beer can be entered for home consumption
and then repackaged to pay a lower rate of duty.
|
|
The concessional spirits scheme is streamlined
to reduce the administrative burden on users of concessional
spirits and protect the revenue where concessional spirits are
unable to be satisfactorily accounted for.
|
Complex provisions govern concessional spirits
(including provisions governing uses, permissions, obligations of
users and formulations).
|
|
In addition to remissions, rebates and refunds
being allowed in prescribed circumstances, regulations may be made
for and in relation to the CEO granting approvals for such
circumstances.
|
Remissions, rebates and refunds are allowed in
circumstances prescribed by regulations.
|
|
The recovery of debts under section 60 of the
Excise Act is covered by the Taxation Administration Act
1953.
|
There are recovery provisions specific to debts
under section 60 of the Excise Act.
|
|
All licence holders can be directed to keep,
retain and produce records by the CEO.
|
Licensed producers and dealers are required to
keep prescribed accounts and make prescribed returns. Other licence
holders can be directed by the CEO to keep, retain and produce
records.
|
|
A definition of renewable diesel in the Energy
Grants (Cleaner Fuels) Scheme Act 2004 to mean liquid fuel
manufactured from vegetable oil or animal fats
by a process of hydrogenation is inserted.
|
Not covered by current law.
|
|
Provisions and certain Acts which are redundant
or inconsistent with best practice regulation are
repealed.
|
Provisions and Acts which are inconsistent with
best practice regulation, such as provisions which are not
enforced, are overly prescriptive or apply to lapsed time periods,
are present.
|
Source: Explanatory Memorandum, paragraph 2.10, pp. 39-41.
Several specific features of the Bill are noteworthy. One is
proposed changes to the excise on biodiesel. The ATO has summarised
the proposed changes with respect to biodiesel as follows:
The key changes relating to biodiesel are:
all biodiesel will be subject to excise duty of
$0.38143 per litre, regardless of end use. Currently, excise is
only payable on biodiesel for use in an internal combustion
engine
a streamlined excise tariff schedule which
includes new tariff items for biodiesel and blends of biodiesel,
and
all blending of biodiesel with other fuels will be
excise manufacture and a manufacturer licence will be required even
where duty has already been paid on the constituent fuels in the
blend.
These changes are expected to apply from 1
July 2006.(2)
Biodiesel is classified as a cleaner fuel and is thus eligible
for a grant under the Cleaner Fuels Grants Scheme. The ATO
describes this Scheme as follows:
The cleaner fuels grants scheme provides for the
payment of a grant in relation to the manufacture and importation
of eligible cleaner fuels. The scheme is designed to encourage the
manufacture and importation of fuels that have a reduced impact on
the environment. Currently, biodiesel and premium unleaded petrol
which has 50 mg/kg of sulphur or less (PULP) are eligible cleaner
fuels.(3)
Another proposal in the Bill is to give the same tax treatment
to a biofuel made by hydrogenation(4) as that given to
biodiesel. The Bill therefore proposes to amend the Energy
Grants (Cleaner Fuels) Scheme Act 2004 by adding a definition
of renewable diesel to cover the hydrogenation of animal fats and
vegetable oils to make renewable diesel.
The proposal to establish a common validity period for excise
licences and other measures has particular relevance for cigarette
producers. The illegal sale of tobacco commonly called chop chop
has been a source of excise evasion. The ATO has sought to crack
down on this abuse, and the Auditor General has twice reviewed the
ATO s efforts, once in
Administration of Tobacco Excise and again in
Administration of Petroleum and Tobacco Excise Collections:
Follow-up Audit.(5) In particular, the provisions
whereby anybody who has had possession, custody or control of
tobacco leaf can be asked to satisfactorily account for it, should
help to reduce illegal trade.
The application of excise since the mid 1990s is covered in a
Parliamentary Library paper titled Excise
taxation: developments since the mid-1990s.
The Government made four announcements regarding the reform of
fuel excise rates and fuel tax credits:
- in the 2003 04 Budget, the Government outlined the reforms
- on 16 December 2003, the Prime Minister elaborated on the
Budget announcement
- in March 2004, the Government extended the transition path for
fuels becoming subject to excise (see below), and
- on 15 June 2004, the Government released the energy white
paper.
On 31 March 2006, the Prime Minister announced
that the Government would give the same tax treatment to a biofuel
made by hydrogenation as that given to biodiesel as part of its
biofuels investments program. Following on from this, in the
2006-07 Budget, the Government stated:
The Government will provide $100.1 million over
four years to allow renewable diesel made from tallow (or animal
fats) using new technology to receive the same tax treatment as
biodiesel. Biodiesel is subject to excise but is effectively tax
free until 1 July 2011 because it is eligible for grants made under
the Energy Grants (Cleaner Fuels) Scheme Act 2004. From
2011 to 2015, grant rates payable with respect to biodiesel, and
therefore renewable diesel, will be reduced to zero in five equal
steps.(6)
See the corresponding section in the Bills Digest for the Fuel
Tax Bill 2006.
See the corresponding section in the Bills Digest for the Fuel
Tax Bill 2006.
The main effect would be that the Government would not be able
to implement the fuel tax credits scheme.
The Explanatory Memorandum on page three contains the following
estimates.
|
Revenue
($m)
|
2006-07
|
2007-08
|
2008-09
|
2009-10
|
|
Australian Customs
Service
|
|
Excise equivalent customs duty
|
250
|
260
|
270
|
280
|
|
Australian Taxation
Office
|
|
Excise duty
|
240
|
250
|
260
|
270
|
| |
|
Expenses($m)
|
2006-07
|
2007-08
|
2008-09
|
2009-10
|
|
Australian Taxation
Office
|
|
Fuel tax credits
|
500
|
510
|
530
|
550
|
| |
|
Impact on fiscal balance ($m)
|
-10
|
-10
|
-10
|
-10
|
In general, the provisions are adequately described in the
Explanatory Memorandum. The following are selected provisions.
Item 6 repeals the definition of biodiesel and
substitutes a new definition [subsection 4(1)].
Biodiesel is a fuel that:
(a) is manufactured by chemically altering vegetable oils or
animal fats (including recycled oils from these sources) to form
mono-alkyl esters; and
(b) complies with the applicable fuel standard for such
fuel.
Item 12 adds a new subsection
4A, which contains a definition of renewable fuel, which
is a liquid fuel that:
(a) is manufactured by chemically altering vegetable oils or
animal fats (including recycled oils from these sources) through a
process of hydrogenation (whether or not that process was part of
some other process); and
(b) complies with the applicable fuel standard for diesel.
As noted, the intention is that all excise licences will expire.
Item 37 repeals existing section 39E and
substitutes a new section 39E. This provides that
when a licence is first issued, its expiry date is 31 March, two
years after the licence was issued. Item 40
provides that the renewal period is three years.
Item 65 adds a new subsection
77AA, which provides that if a person has had possession,
custody or control of tobacco leaf, that person may be asked to
account for the leaf. If the person cannot do so, the person must
pay an amount equal to the excise that would have been paid if the
tobacco had been manufactured into excisable tobacco.
Concluding comments
The amendments to the Excise Act should simplify the
administration and imposition of excise and help protect the
revenue. By imposing excise on fuel blends that are not currently
captured by the excise tariff, revenue will increase.
- Australian Taxation Office website at
http://www.ato.gov.au/businesses/content.asp?doc=/content/74398.htm.
Accessed 17 May 2006.
- ibid.
- Australian Taxation Office website at
http://www.ato.gov.au/businesses/content.asp?doc=/content/38324.htm.
Accessed 17 May 2006.
- For a definition of hydrogenation, see http://en.wikipedia.org/wiki/Hydrogenation.
Accessed 17 May 2006.
- Australian National Audit Office, Administration of Tobacco
Excise, audit report
no. 55, 2001 02, at
http://www.anao.gov.au/WebSite.nsf/Publications/4A256AE90015F69BCA256BCF00808510
and Administration of Petroleum and Tobacco Excise Collections:
Follow-up Audit, audit report no. 33, 2005 06 at
http://www.anao.gov.au/WebSite.nsf/Publications/C66F7C7A5D9DAE07CA2571230080D6F3
. Accessed 22 may 2006.
- Budget Paper No. 2 2006 07, p. 329.
Richard Webb
24 May 2006
Economics, Commerce and Industrial Relations Section
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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