BILLS DIGEST NO. 69, 2018–19              27 March 2019

Customs Amendment (Immediate Destruction of Illicit Tobacco) Bill 2019

Claire Petrie
Law and Bills Digest Section

Purpose of the Bill

The purpose of the Customs Amendment (Immediate Destruction of Illicit Tobacco) Bill 2019 (the Bill) is to amend the Customs Act 1901 to enable the Comptroller-General of Customs to destroy illicit tobacco immediately upon seizing it.

The amendment is connected with the Government’s intention to reclassify tobacco products as prohibited imports from 1 July 2019, so that they require a permit to enter Australia. This will be done through regulatory amendments and does not require legislation. However, the Bill will streamline the processes for dealing with tobacco products which have been imported in contravention of these new requirements.

Background

Black Economy Package

The 2018–19 Budget announced a ‘Black Economy Package’ for the combatting of illicit tobacco.[1] This was aimed at targeting the three main sources of illicit tobacco in Australia—smuggling, leakage from licensed warehouses, and domestic production—and adopted a number of recommendations from the Black Economy Taskforce’s final report, which was publicly released with the Budget.[2]

The Taskforce’s report noted that estimates of the size of the illicit tobacco trade in Australia vary:

According to the Department of Immigration and Border Protection (DIBP) the size of the market is unknown, but could range from 3 to 14 per cent of total consumption. In 2015-16 terms this would suggest expenditure of $0.5 billion to $2.3 billion. In a 2015 study that focused on consumption, or demand, KPMG concluded that excise revenues foregone could be $16 billion. Assuming an average excise rate, this would suggest expenditure in the order $2.5 billion. Other estimates are higher, including those submitted to the 2016 Joint Law Enforcement Committee Inquiry into Illicit Tobacco, which estimated lost excise of about $4 billion, which could imply expenditure in the order of $6 billion.[3]

The Taskforce identified a ‘clear regulatory failure by all levels of government going back a number of years to enforce laws governing illicit tobacco’, with responsibility spread across a range of agencies and organisations, and existing laws and penalties ‘difficult-to-enforce’ and not reflective of the seriousness of the crime.[4]

The ‘Black Economy Package—combatting illicit tobacco’ included the following measures:

•       imposition of customs duty on imported tobacco products at the time they enter an Australian port, removing the ability of importers to defer the payment of duty by storing tobacco in licensed warehouses. This was implemented by the Customs Amendment (Collecting Tobacco Duties at the Border) Act 2018, with corresponding legislation also passed to impose taxation at the time of manufacture on any tobacco manufactured domestically[5]

•       creation of a multi-agency Illicit Tobacco Taskforce to enable enhanced cooperation in tackling illicit tobacco and disrupting illicit tobacco syndicates. The Taskforce was established on 1 July 2018, replacing the Australian Border Force’s Tobacco Strike Team[6] and

•       ongoing funding for the Australian Tax Office to bolster its capabilities to detect and destroy domestically grown illicit tobacco crops, as well as an ATO excise systems upgrade.[7]

Other recently-enacted measures not included as part of the package, but arising out of a 2016–17 Budget commitment to combat the illicit tobacco trade, have included strengthening the offence and penalty regime under the Customs Act and Excise Act 1901.[8]

Prohibited import control for tobacco

The Black Economy Package also included the introduction of a prohibited import control for tobacco from 1 July 2019, requiring permits for all tobacco imports other than those imported by travellers within duty-free limits.[9] The Budget papers explained that the measure would:

…make it easier for the ABF to take enforcement action and seize tobacco where no duty has been paid, increasing the deterrent against illicit tobacco smuggling.[10]

It is this measure to which the current Bill relates, albeit indirectly. The reclassification of tobacco products as ‘prohibited imports’ will be achieved through amending Regulations under the Customs Act, and does not require legislation. The Customs (Prohibited Imports) Amendment (Collecting Tobacco Duties) Regulations 2019, which commences on 1 July 2019, amends the Customs (Prohibited Imports) Regulations 1956 to specify that the importation of tobacco products into Australia is prohibited unless:

•       written permission is granted by the Minister or an authorised person, and the permission is produced to the Collector or

•       the Minister makes a legislative instrument approving the importation.[11]

The Explanatory Statement to the amending regulations states: ‘tobacco products imported without a valid permit would be a prohibited import and able to be seized without a warrant at the border’.[12]

The Bill is aimed at streamlining the process following the seizure of tobacco in such circumstances. As noted by Minister for Home Affairs, Peter Dutton, in his second reading speech:

The Customs Act 1901 currently requires seized prohibited imports to be stored for a minimum of 30 days before destruction. This storage requirement, together with legislative and administrative requirements for prohibited imports, will impact upon border operations and limit the ability of the government to regulate and manage illicit tobacco effectively.[13]

The Bill addresses these potential inefficiencies in the handling of seized tobacco products by giving the Comptroller-General of Customs the power to deal with seized tobacco in any manner they see fit, including immediately destroying the tobacco upon seizure. This change is intended to ‘significantly enhance the ability of Australian Border Force officials to effectively deal with imported illicit tobacco’ and ‘significantly reduce the operational burden of implementing the illicit tobacco reforms’.[14]

Key issues and provisions

Existing forfeiture provisions

The Customs Act provides for the forfeiture of a range of goods upon importation into Australia.[15] This includes all smuggled or unlawfully imported goods and all prohibited imports.[16] As discussed above, the Customs (Prohibited Imports) Regulations 1956 prescribe goods as prohibited imports for the purposes of the Act.[17] From 1 July 2019, tobacco products imported without permission will be prohibited imports for the purposes of the Act.[18] Prohibited imports fall within the definition of ‘special forfeited goods’, and can be seized with or without a warrant in certain circumstances.[19]

Subdivision G of Division 1 of Part XII of the Act sets out a process for dealing with goods which have been seized as forfeited goods. This requires that such goods be stored in an approved place,[20] and that a seizure notice be served on the owner of the goods, or if the owner cannot be identified, on the person in whose possession or under whose control the goods were at the time of seizure.[21] The owner or person in possession may make a claim for the return of seized goods.[22] If no claim is made within 30 days after the day the seizure notice is served, the goods are taken to be condemned as forfeited to the Crown.[23]

Existing section 206 provides that certain goods may be dealt with outside of this process. Relevantly, subsection 206(2A) states that where:

•       goods are seized under the relevant provisions of the Customs Act and

•       the Comptroller-General of Customs is satisfied the goods are a prohibited psychoactive substance or a prohibited serious drug alternative

then the Comptroller-General may cause the goods to be dealt with in such a manner as he or she considers appropriate. This can include the immediate destruction of the goods without adhering to the notice and storage requirements which would otherwise apply.

Change made by the Bill

The Bill has one substantive provision. Item 2 of Schedule 1 amends subsection 206(2A) of the Customs Act to extend the provision’s coverage to ‘tobacco products’. This will allow the Comptroller-General of Customs to immediately destroy (or otherwise deal with) tobacco products which have been seized as prohibited imports under the Customs Act.

While the term ‘tobacco products’ is not currently defined in the Customs Act, the Customs Amendment (Collecting Tobacco Duties at the Border) Act 2018 will insert a definition into that Act from 1 July 2019.[24] ‘Tobacco products’ will capture cigarettes, cigars, cheroots, cigarillos, loose tobacco (manufactured and unmanufactured), tobacco extracts and essences.[25]

Owners of tobacco products destroyed under subsection 206(2A) may have the right to recover the market value of the goods, if they can establish that the circumstances required to trigger the destruction did not exist.[26] If the Comptroller-General deals with goods under subsection 206(2A), within seven days of doing so they must give or publish a notice which identifies the goods, provides details of the manner in which the goods have been dealt with and the reasons for doing so, and sets out the owner’s right to seek recovery of the market value.[27]

Item 1 is a consequential amendment which inserts the term ‘tobacco products’ in the heading for subsection 206(2A).

Committee consideration

Selection of Bills Committee

On 14 February 2019, the Selection of Bills Committee deferred consideration of the Bill to its next meeting.[28]

Senate Standing Committee for the Scrutiny of Bills

The Scrutiny of Bills Committee has not commented on the Bill at the time of writing.

Policy position of non-government parties/independents

At the time of writing there has been no public comment on the Bill by non-government parties or independents.

Position of major interest groups

No major interest groups appear to have commented on the Bill at the time of writing.

Financial implications

The Explanatory Memorandum states that the amendments will have no financial impact.[29]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[30]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights has not commented on the Bill at the time of writing.

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[1].              Australian Government, Budget measures: budget paper no. 2: 2018–19, pp. 12–13.

[2].              Black Economy Taskforce, Final report, The Treasury, Canberra, October 2017, pp. 303–11; P Hawkins, ‘Tobacco’, Budget review 2018–19, Research paper, 2018–19, Parliamentary Library, Canberra, 23 May 2018, pp. 49–50.

[3].              Black Economy Taskforce, Final report, op. cit., p. 30. For further information about the illicit tobacco trade see: P Hawkins and C Barker, Customs Amendment (Collecting Tobacco Duties at the Border) Bill 2018, Bills digest, 35, 2018–19, Parliamentary Library, Canberra, 18 October 2018, pp. 4–5.

[4].              Black Economy Taskforce, Final report, op. cit., pp. 307–8.

[5].              See: Excise Tariff Amendment (Collecting Tobacco Duties at Manufacture) Act 2018. For further information about the two Acts and their background, see Hawkins and Barker, Customs Amendment (Collecting Tobacco Duties at the Border) Bill 2018, op. cit. and J Ayoub, Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Bill 2018 [and] Excise Tariff Amendment (Collecting Tobacco Duties at Manufacture) Bill 2018, Bills digest, 44, 2018–19, Parliamentary Library, Canberra, 14 November 2018.

[6].              P Dutton (Minister for Home Affairs) and K O’Dwyer (Minister for Revenue and Financial Services), Illicit tobacco taskforce to target $600 million black market, media release, 3 July 2018; M Biddington, Customs Amendment (Illicit Tobacco Offences) Bill 2018, Bills digest, 9, 2018–19, Parliamentary Library, Canberra, 13 August 2018, pp. 3–4.

[7].              Budget measures: budget paper no. 2: 2018–19, op. cit., p. 13.

[8].              Customs Amendment (Illicit Tobacco Offences) Act 2018; Treasury Laws Amendment (Illicit Tobacco Offences) Act 2018. For further information, see M Biddington, Customs Amendment (Illicit Tobacco Offences) Bill 2018, op. cit.; A Taylor (Minister for Law Enforcement and Cyber Security) and K O’Dwyer (Minister for Revenue and Financial Services), Tough new measures on illicit tobacco, media release, 28 March 2018.

[9].              Budget measures: budget paper no. 2: 2018–19, op. cit., p. 13.

[10].              Ibid.

[11].              Customs (Prohibited Imports) Amendment (Collecting Tobacco Duties) Regulations 2019, Schedule 1, clause 1, subsection 4DA(1). Subsection 4DA(9) provides that the Minister’s legislative instrument may approve the importation of a specified tobacco product (or class of products), importation by a specified person (or class of persons), importation in a specified way or means, or importation of a tobacco product which does not exceed a specified value or amount.

[12].              Explanatory Statement, Customs (Prohibited Imports) Amendment (Collecting Tobacco Duties) Regulations 2019, p. 2.

[13].              P Dutton, ‘Second reading speech: Customs Amendment (Immediate Destruction of Illicit Tobacco) Bill 2019’, House of Representatives, Debates, 14 February 2019, p. 13389.

[14].              Explanatory Memorandum, Customs Amendment (Immediate Destruction of Illicit Tobacco) Bill 2019, op. cit., p. 2.

[15].              Customs Act 1901, section 229.

[16].              Customs Act, paragraphs 229(1)(a), (b).

[17].              Section 50 of the Customs Act provides that Regulations may be made prohibiting the importation of particular goods into Australia, whether absolutely or in specified circumstances. Section 51 states that such goods are ‘prohibited imports’.

[18].              Customs (Prohibited Imports) Amendment (Collecting Tobacco Duties) Regulations 2019, Schedule 1.

[19].              Customs Act, subsection 183UA(1) (definition of special forfeited goods), sections 203, 203B, 203CA, 203CB.

[20].              Customs Act, section 204.

[21].              Customs Act, sections 205, 205A.

[22].              Customs Act, section 205B.

[23].              Customs Act, section 205C.

[24].              Customs Amendment (Collecting Tobacco Duties at the Border) Act 2018, Schedule 1, clause 1: ‘tobacco products means goods classified to heading 2401, 2402 or 2403 of Schedule 3 to the Customs Tariff Act 1995 (except goods classified to subheading 2402.90.00 or 2403.99.10 of that Schedule).’

[25].              Hawkins and Barker, Customs Amendment (Collecting Tobacco Duties at the Border) Bill 2018, op. cit., pp. 6–7. However, the prohibited import controls for tobacco products will not extend to cigars, which means these products can still be imported without a permit: Customs (Prohibited Imports) Amendment (Collecting Tobacco Duties) Regulations 2019, Schedule 1, clause 1, paragraph 4DA(2)(c).

[26].              Customs Act, subsections 206(6) and (7). A right to recover the market value of the goods will only exist if the goods are not special forfeited goods within the meaning of section 205D (that is, the goods must not fall within the definition of special forfeited goods in subsection 183UA(1) or have been forfeited under certain provisions of the Commerce (Trade Descriptions) Act 1905) and if the goods were not used or otherwise involved in the commission of an offence.

[27].              Customs Act, subsections 206(3) and (5). Subsection 206(4) specifies that the notice must be in writing and either served personally or by post on the owner of the goods, or if the owner cannot be identified, on the person in whose possession or under whose control the goods were at the time of seizure. Where no such person can be identified, the notice must be published in a newspaper circulating in the location in which the goods were seized.

[28].              Senate Standing Committee for Selection of Bills, Report, 1, 2019, The Senate, Canberra, p. 5.

[29].              Explanatory Memorandum, Customs Amendment (Immediate Destruction of Illicit Tobacco) Bill 2019, p. 3.

[30].              The Statement of Compatibility with Human Rights can be found at pages 4–6 of the Explanatory Memorandum to the Bill.