Tax—tobacco excise

Budget Review 2017–18 Index

Phillip Hawkins and Kali Sanyal

The 2017–18 Budget increases excise and excise equivalent customs duties (‘excise’) for roll your own (RYO) tobacco and other tobacco products that are taxed on a per kilogram basis.[1]

This increase is in addition to the decision taken in the 2016–17 Budget to increase tobacco excise on all tobacco products, including cigarettes and RYO tobacco, by an additional 12.5 per cent on 1 September of each year from 2017 to 2020.[2] That measure was implemented by the Excise Tariff Amendment (Tobacco) Act 2016. It is also in addition to the biannual indexation of tobacco excise to average weekly ordinary time earnings on 1 March and 1 September each year.[3]

The adjustment in the per kilogram rate of excise under this measure will be phased in over four years and match the timing of the 12.5 per cent increases from the 2016–17 Budget. The measure is expected to increase revenue by $360.0 million over the budget forward estimates period (including an increase in GST revenue of $35.0 million which will be paid out to the states and territories).[4] The measure will require legislation.

How the measure applies

Since 1999, the rate of excise on cigarettes has been set on the following basis.

The per stick excise rate will be set such that the excise per kilogram of tobacco on a cigarette containing 0.8 grams of tobacco will be the same as the excise on a kilogram of tobacco[5]

The 2017–18 Budget measure changes this relativity by:

...calculating the per kilogram excise and excise-equivalent customs duty rates on the assumption that the average tobacco content of a cigarette is 0.7 grams, rather than the current assumption of 0.8 grams.[6]

This means the tax on a kilogram of tobacco will increase relative to the tax on cigarettes. The Government states that the tax treatment of RYO tobacco is currently more favourable, as the average cigarette contains less than 0.8 grams of tobacco, and that this measure will ensure that the tax treatment of tobacco products is better aligned.[7]

Example

The current excise rate on tobacco is $771.60 per kilogram or around $0.62 per stick. This is calculated on the basis of an assumed 0.8 grams of tobacco per stick. If the 0.7 gram per stick assumption were to apply today, a $0.62 per stick rate would be equivalent to around $882.0 per kilogram.[8]

To put it another way, under current excise rates, 50 grams of RYO tobacco would be taxed equivalent to around 62.5 cigarettes. Under this change 50 grams of RYO tobacco would be taxed equivalent to around 71.5 cigarettes.[9]



[1].          Tobacco in a stick form and not exceeding 0.8 grams of tobacco content is taxed on a per stick basis ($0.61726 per stick as at 15 May 2017); all other tobacco is taxed on a per kilogram basis (currently $771.60 per kg as at 15 May 2017): Australian Taxation Office (ATO), ‘Excise rates for tobacco’, ATO website.

[2].          Australian Government, Budget measures: budget paper no. 2: 2016–17, 2016, p. 16.

[3].          ATO,, ‘Excise rates for tobacco’ op. cit.

[4].          Australian Government, Budget measures: budget paper no. 2: 2017–18, 2017, p. 12. As GST applies to the final sales price of a good or service, an increase in excise or customs duties will also lead to an increase in GST revenue. This additional GST revenue is paid out to the states and territories under the terms of the Intergovernmental Agreement on Federal Financial Arrangements.

[5].          P Costello (Treasurer), Reform of tobacco taxation, media release, 3 February 1999.

[6].          Australian Government, Budget measures: budget paper no. 2: 201718, op. cit.

[7].          Ibid.

[8].          $771.60 per kilogram is equivalent to 77.16 cents per gram, so a cigarette containing 0.8 grams of tobacco would have around 62.17 cents of excise on it. Reversing this calculation, with an assumed 0.7 grams of tobacco, leads to an estimate of around $882.00 per kilogram (Parliamentary Library estimate).

[9].          Parliamentary Library estimate.

 

All online articles accessed May 2017. 

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