BILLS DIGEST NO. 13, 2011–12, 18 July 2011

Excise Tariff Amendment (Taxation of Alternative Fuels) Bill 2011

Richard Webb
Economics Section

Date introduced:  12 May 2011

House:  House of Representatives

Portfolio:  Treasury

Commencement:  Sections 1 to 3—and anything in the Bill not covered by the table in clause 2—commence on Royal Assent. Part 6 of Schedule 1 also commences on Royal Assent.  Schedule 1 commences on 1 December 2011 but will not commence if elements of three proposed Bills do not commence on or before 1 December 2011. These elements are:

•       Part 1 of Schedule 1 to the Customs Tariff Amendment (Taxation of Alternative Fuels) Act 2011

•       Schedule 1 to the Taxation of Alternative Fuels Legislation Amendment Act 2011, and

•       Schedule 1 to the Energy Grants (Cleaner Fuels) Scheme Amendment Act 2011.

Parts 2 to 5 of Schedule 1 commence on four different days as set out in clause 2 subject to the proviso that Parts 2 to 5 will not commence if all of the provisions in the three Bills listed above do not commence.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/bills/. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose

The main purpose of the Excise Tariff Amendment (Taxation of Alternative Fuels) Bill 2011 (the Bill) is to impose excise on compressed natural gas (CNG), liquefied natural gas (LNG), and liquefied petroleum gas (LPG) at different rates and at different times. The Bill is one of four related Bills. The other three Bills are the Taxation of Alternative Fuels Legislation Amendment Bill 2011, the Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011, and the Customs Tariff Amendment (Taxation of Alternative Fuels) Bill 2011.[1] Together, the Bills have two main purposes. The first is to impose excise and customs duty on certain fuels. The second purpose is to provide for the continued subsidisation of the use of renewable fuels. This Bills Digest should therefore be read in conjunction with the Digests for those three Bills.[2]

Background

CNG, LNG, and LPG are excise-exempt. The Howard Government decided to impose excise on these fuels and that the rates would be phased in over a number of years beginning on 1 July 2011. The implementation method was to impose excise and to provide credits that would partly offset the excise (the difference between the excise rate and the credit is called the ‘effective’ excise rate). The credits would be gradually reduced until the so-called ‘final’ effective rates came into effect on 1 July 2015. The final rates would be based on the fuels’ energy contents and would be ‘discounted’ relative to the ‘general’ rate of excise on fuels which is 38.143 cents per litre (cpl).  Table 1 summarises the Howard Government’s policy on the three fuels.

Table 1: The Howard Government’s proposed effective excise rates on CNG, LNG and LPG (cents per litre)

Fuel/date of effect

1 July 2011

1 July 2012

1 July 2013

1 July 2014

1 July 2015

Liquefied petroleum gas, liquefied natural gas

2.5

5.0

7.5

10.0

12.5

Compressed natural gas

3.8

7.6

11.4

15.2

19.0

Source: Department of Prime Minister and Cabinet, Fuel Excise Reform, Canberra, 2004.
Note: rates are cents per litre except compressed natural gas, which is cents per cubic metre.

Table 2 shows the Government’s proposals. Note that the base for the proposed excise on LNG has changed from a litre to a kilogram.

Table 2: The Gillard Government’s proposed excise rates on CNG, LNG and LPG (cents)

Fuel/date of effect

1 December 2011

1 July 2012

1 July 2013

1 July 2014

1 July 2015

Liquefied petroleum gas

2.50

5.00

7.50

10.00

12.50

Liquefied natural gas, compressed natural gas

5.22

10.45

15.67

20.90

26.13

Source: Parts 1 to 5 of the Excise Tariff Amendment (Taxation of Alternative Fuels) Bill 2011
Note: rate for LPG is per litre; rate for LNG and CNG is per kilogram

Basis of policy commitment

For details of the policy commitment, see the Bills Digest for the Taxation of Alternative Fuels Legislation Amendment Bill 2011.

Committee consideration

The Bill—together with the other three Bills listed above— was referred to the House of Representatives Standing Committee on Economics for inquiry. The Committee reported on 1 June 2011. Details of the inquiry are at: http://www.aph.gov.au/house/committee/economics/TaxingFuels/index.htm

Policy position of non-government parties/independents

See the Bills Digest for the Taxation of Alternative Fuels Legislation Amendment Bill 2011.

Position of major interest groups

See the Bills Digest for the Taxation of Alternative Fuels Legislation Amendment Bill 2011.

Financial implications

See the Bills Digest for the Taxation of Alternative Fuels Legislation Amendment Bill 2011.

Key provisions

Schedule 1—Amendment of the Excise Tariff Act 1921

Part 1—Amendments to commence on 1 December 2011

Subsection 3(1) of the Excise Tariff Act 1921 (Excise Tariff Act) contains definitions. While this Act uses the term ‘liquefied petroleum gas’ once, the Act does not define it. Item 1 inserts a definition of LPG, which may consist of a single gas (for example, liquid propane) or different combinations of gases (for example, liquid propane and butane). The Bill does not insert definitions of CNG or LNG both of which will be subject to excise.

The Excise Tariff Act contains a Schedule which lists the goods that are subject to excise such as alcohol, tobacco, and fuels. The Schedule is arranged by items and sub-items. For example, item 10 lists the fuels that are subject to excise while sub-item 10.17 covers blends of petrol and ethanol (fuel ethanol). Section 6G of the Excise Tariff Act deals with the excise payable on fuel blends covered by sub-items 10.7, 10.11, 10.12 or 10.30. Item 2 repeals section 6G and substitutes new section 6G. New subsection 6G(1) contains the process for calculating excise on blends in sub-items 10.7, 10.11, 10.12 or 10.30. In short, the excise on a blend is the weighted average of the excise on each of the component fuels in the blend where the weights are determined by the relative volumes of each fuel in the blend. New subsection 6G(2) deals with the calculation of excise where a constituent of a blend has been imported. In such cases, the amount of the excise is the lesser of the excise that would be payable based on the assumption that the constituent had been manufactured in Australia (new paragraph 6G(2) (b)(i)) and the actual amount of customs duty paid on the constituent (new paragraph 6G(2) (b)(ii)).

Item 4 inserts LPG, LNG and CNG into the Schedule thereby listing them as fuels on which excise is payable.

Item 6 adds to the list of fuels subject to excise goods covered by section 77HA or 77HB of the Excise Act 1901. However, these two sections do not, as yet, exist; rather, they are proposed by item 10 of the Taxation of Alternative Fuels Legislation Amendment Bill 2011. The proposed sections deal with the conditions under which CNG, LPG and LNG are excise-exempt. The thrust of these proposed sections is that these fuels are exempt if they are used for purposes other than in road transport such as manufacturing certain fuels or forklifts. Thus item 6 would exempt CNG, LPG and LNG from excise if they are used as described in proposed section 77HA or proposed section 77HB of the Excise Act 1901.

Item 7 inserts the excise rates for LPG, LNG and CNG that are to come into effect on 1 December 2011. The rates are $0.025 per litre for LPG, and $0.0522 per kilogram for both LNG and CNG.

Part 2—Amendments to commence on 1 July 2012

Item 8 inserts the excise rates for LPG, LNG and CNG that are to start on 1 July 2012. Item 8 will repeal the rates established by item 7 and substitute the replacement rates which will be $0.05 per litre for LPG, and $0.1045 per kilogram for LNG and CNG.

Part 3—Amendments to commence on 1 July 2013

Item 9 inserts the excise rates for LPG, LNG and CNG that are to start on 1 July 2013. Item 9 will repeal the rates established by item 8 and substitute the replacement rates which will be $0.075 per litre for LPG, and $0.1567 per kilogram for LNG and CNG.

Part 4—Amendments to commence on 1 July 2014

Item 10 inserts the excise rates for LPG, LNG and CNG that are to start on 1 July 2014. Item 10 will repeal the rates established by item 9 and substitute the replacement rates which will be $0.10 per litre for LPG, and $0.209 per kilogram for LNG and CNG.

Part 5—Amendments to commence on 1 July 2015

Item 11 inserts the excise rates for LPG, LNG and CNG that are to start on 1 July 2015. Item 11 will repeal the rates established by item 10 and substitute the replacement rates which will be $0.125 per litre for LPG, and $0.2613 per kilogram for LNG and CNG.

Concluding comments

See the Bills Digest for the Taxation of Alternative Fuels Legislation Amendment Bill 2011.[3]

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2460.

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ISSN 1328-8091

[1].              These three Bills received Royal Assent on 29 June 2011.

[2].              R Webb, Taxation of Alternative Fuels Legislation Amendment Bill 2011, Bills Digest, no. 132, 2010-11, Parliamentary Library, Canberra, 27 June 2011, viewed 15 July 2011, http://www.aph.gov.au/library/pubs/bd/2010-11/11bd132.pdf; R Webb, Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011, Bills Digest, no. 133, Parliamentary Library, Canberra, 20 June 2011, viewed 15 July 2011, http://www.aph.gov.au/library/pubs/bd/2010-11/11bd133.pdf ; R Webb, Customs Tariff Amendment (Taxation of Alternative Fuels) Bill 2011, Bills Digest, no. 151, 2010-11, Parliamentary Library, Canberra, 24 June 2011, viewed 15 July 2011, http://www.aph.gov.au/library/pubs/bd/2010-11/11bd151.pdf

[3].               R Webb, Taxation of Alternative Fuels Legislation Amendment Bill 2011, Bills Digest, no. 132, 2010-11, Parliamentary Library, Canberra, 27 June 2011, viewed 17 June 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F851517%22