Bills Digest no. 161 2008–09
Carbon Pollution Reduction Scheme (CPRS Fuel Credits)
Bill 2009
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
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Date
introduced: 14 May
2009
House: House of Representatives
Portfolio: Treasury
Commencement:
Sections 2-1 to 13-1
commence on 1 July 2011 but will not commence if section 3 of the
proposed Carbon Pollution Reduction Scheme Act 2009 does
not commence before 1 July 2011. All other sections commence on
Royal Assent.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
To establish a CPRS fuel credit
program to offset, temporarily, the effect on business of higher
fuel prices resulting from the advent of the Carbon Pollution
Reduction Scheme (CPRS).
Most fuels, notably petrol and diesel, are subject to a general
rate of excise and customs duty of 38.143 cents per litre. Some
fuels, notably liquid petroleum gas (LPG), liquefied natural gas
(LNG), and compressed natural gas (CNG) are, however, not subject
to excise.
The government expects the prices of fuels will rise consequent
to the introduction of the CPRS, and intends to offset the price
rises, temporarily, by reducing the rates of excise and customs
duty on fuels. The mechanisms for effecting the excise and customs
duty rate reductions are contained in the Excise Tariff Amendment
(Carbon Pollution Reduction Scheme) Bill 2009[1] and the Customs Tariff
Amendment (Carbon Pollution Reduction Scheme) Bill 2009[2] respectively.
The
Fuel Tax Act 2006 provides to eligible business
activities a fuel tax credit to offset, in full or part, the excise
and customs duty businesses pay on fuels. The credit rates and
eligible fuels are set out in Table 1 below.
Table 1: Fuel tax credits rates
(cents per litre) and eligible fuels
|
Activity/business use
|
Eligible
fuel
|
Rates
|
|
In a vehicle greater than
4.5 tonne GVM travelling on a public road (diesel vehicles
acquired before 1 July 2006 can equal 4.5 tonne GVM).
|
All taxable fuels for
example, diesel and petrol.
|
17.143*
|
|
Petrol has only
been eligible since 1 July 2008.
|
|
Emergency vehicles greater
than 4.5 tonne GVM travelling on a public road (diesel
vehicles acquired before 1 July 2006 can equal 4.5 tonne
GVM).
|
All taxable fuels for
example, diesel and petrol. Petrol has been eligible only
since 1 July 2008
|
17.143*
|
|
Specified activities
eligible since 1 July 2006 in: agriculture, fishing, forestry,
mining, marine transport, rail transport, and nursing and
medical
|
Diesel and fuel oil.
|
38.143
|
|
All taxable fuels
including petrol.
|
38.143
|
|
Petrol has only
been eligible since 1 July 2008.
|
|
Burner applications
|
All taxable fuels for
example, diesel, petrol, heating oil, kerosene and fuel oil.
|
38.143
|
|
Non-fuel uses such as:
fuel you use directly as a mould release, and fuel you use an
ingredient in the manufacture of products
|
All taxable fuels for
example, kerosene, fuel oil, toluene, mineral turpentine and white
spirit.
|
38.143
|
|
Packaging fuels in
containers of 20 litres or less for non-internal combustion
engine use.
|
Mineral turpentine, white
spirit, kerosene and certain other fuels.
|
38.143
|
|
Supply of fuel for
domestic heating.
|
Heating oil and
kerosene
|
38.143
|
|
Electricity generation by
a commercial generation plant, a stationary generator or a portable
generator.
|
All taxable fuels for
example, diesel, petrol, heating oil, kerosene, and fuel oil.
|
38.143
|
|
Emergency vessels
|
Diesel and fuel oil.
|
38.143
|
|
All taxable fuels
including petrol.
|
38.143
|
|
Petrol has only
been eligible since 1 July 2008.
|
|
All other activities,
machinery, plant and equipment are eligible from 1 July 2008.
Examples of activities are: construction, manufacturing,
wholesale/retail, property management, and landscaping:
|
All taxable fuels for
example, diesel and petrol.
|
19.0715**
|
|
Source:
Australian Taxation Office
|
|
Notes:
|
|
* This rate accounts for
the road user charge, which is subject to change.
|
|
Heavy vehicles (that is,
those with a GVM greater than 4.5 tonne) travelling on a public
road are entitled to the full tax credit rate of 38.143 cents per
litre minus the road user charge.
|
|
From 1 January 2009, the
road user charge is 21 cents per litre, so the rate for heavy
vehicles is 17.143 cents per litre (38.143-21= 17.143).
|
|
**The rate of 19.0715
cents per litre is 50% of the full rate of 38.143 cents per litre.
The full rate will apply to all these activities from 1 July
2012.
|
Table 1 shows that for many activities, the amount of the fuel
tax credit equals the amount of excise. Consequently, for these
activities, the effective rate of excise excise less the fuel tax
credit is zero. Activities which incur a zero effective rate of
excise cannot, therefore, benefit from the proposed excise rate
reductions. Rather, they will be relatively worse off
compared with other activities that do benefit from the excise
reductions. The government therefore proposes to introduce,
temporarily, an additional credit the CPRS fuel credit for
these (and other) activities.
As noted, some activities are entitled to only a partial offset
of excise paid. They include incidental agricultural and fishing
activities (see the last row of Table 1 for other
examples).[3] The
reason they receive only a partial credit is that they were
initially not eligible for a fuel tax credit but were later
included when the scope of the fuel tax credit scheme was expanded.
However, the fuel tax credit for these activities is being phased
in. Currently, the amount of the fuel tax credit for these
activities is half the excise rate, that is, 19.0175 cents per
litre. These activities will be eligible for a full fuel tax credit
on 1 July 2012. The government proposes that incidental activities
receive an additional amount equal to 50 per cent of the CPRS fuel
credit until 30 June 2012.
Heavy vehicles are those with a gross vehicle mass (GVM) of more
than 4.5 tonnes. Heavy vehicles also do not receive a full fuel tax
credit, nor do diesel-powered vehicles acquired before 1 July 2006
with a GVM equal to 4.5 tonnes. These vehicles receive a fuel tax
credit of 17.143 cents per litre. The difference between the excise
(38.143 cents per litre) and the fuel tax credit is the road user
charge (21 cents per litre). This charge seeks to recover the cost
of damage that heavy vehicles cause to roads. Under the CPRS, heavy
vehicle users are expected to face higher fuel prices, notably for
diesel. The government s proposal for heavy vehicles is as
follows:
For one year beginning 1 July 2011, business
users of vehicles on-road with a gross vehicle mass exceeding 4.5
tonnes will be entitled to a CPRS fuel credit for eligible taxable
fuels. The amount of the CPRS fuel credit will be equal the fuel
tax reductions. [Division 6, section 6-15, CPRS Fuel Credits
Bill].[4]
The amount of the CPRS fuel credit will be 2.455 cents per litre
for the year 1 July 2011 to 30 June 2012.[5]
CNG, LNG and LPG will be subject to the CPRS. Consequently,
their prices are also expected to rise. Because these gases are not
subject to excise, they will not benefit from the excise
reductions. The government therefore proposes to make the CPRS fuel
credit available to CNG, LNG and LPG suppliers.
The Rudd Government made the commitment to provide temporary
adjustment assistance to businesses with respect to fuel prices in
its CPRS White Paper:
Fuel tax credits remove or reduce the incidence
of effective fuel tax from business inputs. They ensure that most
businesses do not pay effective fuel tax. Therefore, reducing the
rate of fuel tax will not benefit those businesses. To address
this, the Green Paper proposed to introduce special measures for
the agriculture and fishing industries and heavy on‑road
vehicle users.
Assistance to the agriculture and
fishing industries
Agriculture and fishing businesses pay no
effective fuel tax, and so will not benefit from fuel tax cuts.
Instead, they will receive a new CPRS fuel credit . The amount of
credit will equal the fuel tax cut. The Government will align the
credit amount with the six-monthly fuel tax cut assessments. This
will ensure that these businesses receive assistance equivalent to
the full benefit of the fuel tax cut.
Agricultural and fishing activities, excluding
forestry, will be eligible for the CPRS fuel credit from
1 July 2010 to 30 June 2013. The Government will review
this measure after three years as part of the review of the fuel
tax adjustment mechanism.
The new CPRS fuel credit scheme will minimise
compliance burdens for eligible businesses. The Australian Taxation
Office will administer the CPRS fuel credit, and businesses will
claim it on their business activity statements.
|
Policy position 17.1
The Government will introduce legislation to
implement a new CPRS fuel credit scheme for three years for
businesses in the agriculture and fishing industries.
|
Assistance to heavy on‑road
transport vehicle users
Heavy vehicle road users will be eligible for a
CPRS fuel credit to offset the initial price impact on fuel from
introducing Scheme.
Heavy road transport businesses are eligible
for fuel tax credits up to the value of the road user charge, which
will be 21 cents/litre from 1 January 2009. Businesses in
this industry will be able to claim the CPRS fuel credit, equal to
the cut in fuel tax for one year. The Government will review this
measure after one year.
Vehicles with a gross vehicle mass exceeding
4.5 tonnes will be eligible for the CPRS fuel credit.
To minimise the compliance burden for eligible
businesses, the Australian Taxation Office will administer the CPRS
fuel credit, and businesses will claim it on their business
activity statements.
|
Policy position 17.2
The Government will introduce legislation to
implement a new CPRS fuel credit scheme for one year for businesses
in heavy on‑road transport.
|
Assistance to
LPG, CNG and LNG fuel users
LPG, CNG and LNG are alternative transport
fuels that compete with petrol and diesel. LPG is Australia s most
widely used alternative fuel, comprising over 5 per cent of
the transport fuel market.
LPG, CNG and LNG are not currently subject to
fuel tax, so their users will not benefit from fuel tax cuts.
Instead, a CPRS fuel credit will be available in each case to an
appropriate entity in the supply chain. As the volume of emissions
from these fuels is substantially lower than the volume from petrol
and diesel, the carbon price impact on them will be lower. To
reflect this, the amount of credit will be less than the full
amount of the fuel tax cut. This will maintain the relative prices
of these fuels against petrol and diesel. CNG users will benefit
from a credit of around three-quarters of the fuel tax cut, LPG
users will benefit from a credit of around two-thirds, and LNG
users will benefit from a credit of around one-half.
CNG and LNG fuel suppliers will not be provided
with CPRS fuel credits after 30 June 2011. This treatment is
the same as heavy on-road transport as these fuels are
predominantly used for this purpose. The Government will review
this measure after one year.
CPRS fuel credits will cease for LPG on
1 July 2013. The Government will review this measure after
three years.
|
Policy position 17.3
The Government will introduce legislation to
implement a new CPRS fuel credit scheme for LPG, CNG and LNG users
that reflects the lower emissions of those fuels.
The CPRS fuel credit scheme for LPG will be in
place for three years.
The CPRS fuel credit scheme for CNG and LNG
will be in place for one year.[6]
|
On 4 May 2009, the government announced that it would delay the
start date for the CPRS to 1 July 2011, and that the emission unit
charge would be fixed at $10 per tonne.[7]
The
Bill has been referred to the Senate Economics Legislation
Committee for inquiry and report by 15 June 2009. Details of the
inquiry are at
http://www.aph.gov.au/senate/Committee/economics_ctte/cprs_2_09/index.htm
See the Bills Digest for the Carbon Pollution Reduction Scheme
Bill 2009.
The Explanatory Memorandum does not identify separately the
financial consequences of the Bill. Rather, it shows the estimated
combined consequences of the Bill and related Bills as shown
below.
| |
|
|
|
|
|
|
Revenue
($m)
|
|
|
|
|
|
|
Australian
Customs and Border Protection Service
|
|
|
$33m
|
$109m
|
$127m
|
|
ATO
|
|
|
$1,027m
|
$3,383m
|
$3,843m
|
|
Total
|
|
|
$1,060m
|
$3,492m
|
$3,970m
|
|
Expense
($m)
|
|
|
|
|
|
|
ATO
|
|
|
$186m
|
$1,287m
|
$1,476m
|
|
Total
|
|
|
$186m
|
$1,287m
|
$1,476m
|
Source: Explanatory Memorandum, p. 8
The Bill does not appropriate funds. Rather, it establishes the
framework for the CPRS credit.
Subdivision 6-A establishes which industries
are entitled to receive CPRS credits, the periods of entitlement,
and the eligible fuels.
Clause 6-5 CPRS fuel credit for fuel to be used for
fishing operations or agriculture establishes eligibility
for the agricultural and fishing industries. Paragraph
6-5(c) provides that to be eligible, an enterprise must be
engaged in fishing operations [subparagraph
6-5(c)(i)] or agriculture [subparagraph
6-5(c)(ii)]. Subclause 6-5(1) establishes
the start and end of the period to which the CPRS applies, namely,
1 July 2011 and 30 June 2014 respectively. Paragraph
6-5(1)(d) specifically excludes from eligibility, fuel
used in a vehicle travelling on a public road. To be eligible, an
enterprise must also be registered for GST or be required to be
registered for GST [subclause 6-5(2)].
The provisions in clause 6-10 are identical to
those in clause 6-5 except that
clause 6-10 relates to incidental agricultural and
fishing activities.
Clause 6-15 deals with the eligibility of heavy
vehicles used by businesses on public roads. Eligibility for these
vehicles applies for one year from 1 July 2011 to 30 June 2012
[subclause 6-15(1)]. To be eligible, an enterprise
using heavy vehicles must also be registered for GST or be required
to be registered for GST [subclause 6-15(2)].
However, the GST requirement does not apply to non-profit
bodiesregarding emergency vehicles they use [subclause
6-15(3)].
As noted, diesel-powered vehicles acquired before 1 July 2006
with a GVM equal to 4.5 tonnes receive only a partial tax credit
and pay the road user charge. To receive a CPRS credit (as well as
a fuel tax credit) these vehicles must qualify under item 12 of
Schedule 3 of the
Fuel Tax (Consequential and Transitional Provisions) Act
2006 [subclause 6-20(1)]. Like heavy
vehicles, eligibility for this category of vehicles applies for the
year starting on 1 July 2011 and ending on 30 June 2012
[paragraphs 6-20(1)(a) and (b)].
Also like heavy vehicles, an enterprise must be registered for GST
or be required to be registered for GST [subclause
6-20(2)] but the GST requirement does not apply to
non-profit bodies and emergency vehicles [subclause
6-20(3)].
As noted, LPG, LNG, and CNG are not subject to excise. Of these,
LPG is the most widely-used to power vehicles. All three fuels will
be eligible for a CPRS credit. The provisions governing these fuels
clauses 6-25, 6-30 and 6-35
respectively are identical except in three respects: references to
the different fuels, the eligibility period, and provisions
regarding the supply and use of fuel which relate to LPG only.
Clause 6-25 will therefore be taken as
representative of all three clauses.
Subclause 6-25(1) sets out the period over
which the CPRS will apply to LPG. LPG will be eligible for three
years whereas CNG and LNG will be eligible for one year only. LPG
will be eligible for the CPRS credit only if it meets four
conditions. First, it must be used for a vehicle travelling on a
road [paragraph 6-25(1)(c)]. Second, the
enterprise must be a liable entity under the proposed Carbon
Pollution Reduction Scheme Act 2009 [paragraph
6-25(1)(c)]. Third, if the enterprise supplies LPG, it
must do so in its capacity as a LPG marketer [paragraph
6-25(1)(e)]. Fourth, if the enterprise is using LPG for
its own use, it must be a LPG marketer at the time of use
[paragraph 6-25(1)(f)]. Note that
paragraphs 6-25(1)(e) and (f)
relate only to LPG; there are no comparable provisions for CNG and
LNG. Subclause 6-25(2) further requires that the
enterprise be registered for GST or be required to be registered
for GST.[8]
The provisions in subdivision 6-B have three purposes:
- to prevent double dipping by ensuring that a CPRS credit cannot
be claimed twice for the same fuel
- to prevent claims being made for vehicles that do not meet
environmental criteria, and
- to exclude fuel used in aircraft being eligible for a CPRS
credit.
Subclause 6-40(1) provides that no CPRS fuel
credit is payable if it is reasonable to conclude that another
entity has previously been entitled to a CPRS fuel credit, or a
decreasing CPRS fuel credit adjustment. Subclause
6-40(2) provides that subclause 6-40(1)
does not apply if it is also reasonable to conclude that another
entity had, in respect of the credit, an increasing CPRS fuel
credit adjustment of the amount of the credit. The terms decreasing
and increasing CPRS fuel credit adjustments are defined in Division
8 (see below).
Clause 6‑45
provides that no CPRS fuel credit will be payable if the fuel is
used in motor vehicles that do not meet the environmental
criteria set out in subclause 6-45(1).
However, subclause 6-45(2) provides that these
environmental requirements do not apply if the vehicles is used in
a primary production businesses and on an agricultural property
[paragraph 6-45(2)(a)]or is not diesel powered
[paragraph 6-45(2)(b)] or is not used on a public
road[paragraph 6-45(2)(c)].
Aviation gasoline and kerosene are subject to excise. The
revenue is used to help recover the cost of providing aviation
safety services, that is, a form of cost recovery. Clause
6-50 therefore provides that there will be no CPRS fuel
credit for fuel used in aircraft.
Clause 7-5 contains the formula for working out
the amount of the CPRS credit. The formula includes an adjustment
factor . This is the proportion of the CPRS credit to which the
applicant is entitled. For example, in the case of agriculture and
fishing operations, the applicant is entitled to a full credit
whereas incidental agricultural and fishing activities are entitled
to only half of the CPRS credit. The proportions for automotive
LPG, CNG and LNG are 67, 78 and 50 per cent respectively.
For CNG, its proportion translates into a CPRS fuel credit of
1.915 cents per cubic metre, and 1.228 cents per litre for
LNG, both for one year. LPG will be eligible for CPRS credits for
three years. LPG will receive a CPRS credit of 1.645 cents per
litre for the first year. After the first year, the CPRS credit for
LPG will be adjusted in accordance with increases in the emissions
unit charge.[9]
The reason for the different proportions for gaseous fuels
is:
The volume of emissions from these fuels is
substantially lower than the volume from petrol and diesel and
therefore the carbon price impact on them will be lower. To reflect
this, the amount of credit will be less than the full amount of the
fuel tax cut. This will maintain the relative prices of these fuels
against petrol and diesel.[10]
Subdivision 8-A deals with adjustments to CPRS
fuel credits. Adjustments arise when actual fuel use differs from
its intended use, that is, the purpose for which the fuel is to be
used. CPRS credits like fuel tax credits will be based on intended
fuel use. When making a claim for CPRS credits, applicants will
base their claims on intended fuel use. If actual use differs from
intended use, the amount of the CPRS credit will be adjusted to
reflect the correct entitlement. The reason claims are based on
intended use is so that applicants are not out-of-pocket while
waiting for claims to be paid. Applicants have subsequently to
report how they actually used the fuel.
Subclause 8-5(1) provides that an adjustment is
required when there is an increase or decrease in the CPRS credit
to which the applicant is entitled, that is, when the entitlement
originally claimed differs from the correct entitlement.
Subclause 8(5)(2) defines the amount of the
adjustment as the difference between the two. A decreasing
CPRS fuel credit adjustment is where the applicant s
claimed entitlement exceeds the correct entitlement so that the
amount of the CPRS credit is reduced [subclause
8-5(3)]. In other words, a decreasing entitlement is where
the applicant, in effect, owes money to the Commissioner of
Taxation. The reverse is true of an increasing adjustment
[subclause 8-5(4)].
Clause
11-15 empowers the Governor-General to make regulations
for matters relating to the proposed Carbon Pollution Reduction
Scheme (CPRS Fuel Credits) Act 2009 Act.
Concluding comments
There is good reason for not taxing business inputs such as fuel
because such taxes distort resource allocation.[11] Excise increases the cost of
fuel that businesses use. Businesses pass on the excise, to varying
degrees, in the prices of their goods and services. Higher prices
reduce demand for the goods and services of the industries that use
fuel relatively intensively. This in turn reduces the quantity of
resources these industries employ. In short, fuel input taxes
distort both consumption and production. The fuel tax credit system
provides relief from these effects.[12]The CPRS, in so far as it maintains
the non-taxation of business inputs, is a logical extension of the
fuel tax credits system.
Another logical extension would be to revamp fuel excise. The
current structure of fuel excises is haphazard. As noted, some
fuels are subject to excise while others are not for no good
reason. Haphazardness is also evident in the failure to index fuel
excise so that excise keeps pace with inflation. On 1 March 2001,
the Howard Government announced the cessation of all future
indexation of the excises on petroleum fuels (indexation continued
to apply to other goods). The excise on petrol and diesel has since
remained at 38.143 cents per litre. The absence of indexation
provides fuel users with a continuous de facto tax cut as prices
rise. Had indexation continued, the excise rate would now be more
than 48 cents per litre.[13] The decision to forgo indexation has also reduced
government revenue considerably.
The Fuel Taxation Inquiry recommended a revamp of excise based
on the energy content of each fuel.[14] However, neither the Howard nor Rudd
Governments have adopted this recommendation or the Inquiry s
recommendation that indexation be reintroduced.
The cessation of indexation may have encouraged the purchase of
less fuel-efficient vehicles. This could be seen as inconsistent
with other aspects of fuel taxation, especially the encouragement
of the use of alternative fuels on environmental grounds. The
cessation of indexation on petroleum fuels could also be seen as
inconsistent with the continuing indexation of excise on other
products. To meet environmental concerns, in addition to basing
excise on energy content, an option would be to impose an
additional amount that reflects the carbon dioxide-intensity of
each fuel.
The proposal to cut excise for heavy vehicle users affects the
road user charge. If heavy vehicle users pay 35.688 cents per litre
(38.143 less 2.455) excise and the fuel tax credit remains at
17.143 cents per litre, the road user charge will increase to
18.545 cents per litre. This would result in costs being
over-recovered. The government has not indicated that it intends to
change the fuel tax credit from 17.143 cents per litre.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
2464.
Richard Webb
5 June 2009
Bills Digest Service
Parliamentary Library
© Commonwealth of Australia
This work is copyright. Except to the extent of uses permitted
by the Copyright Act 1968, no person may reproduce or transmit any
part of this work by any process without the prior written consent
of the Parliamentary Librarian. This requirement does not apply to
members of the Parliament of Australia acting in the course of
their official duties.
This work has been prepared to support the work of the Australian
Parliament using information available at the time of production.
The views expressed do not reflect an official position of the
Parliamentary Library, nor do they constitute professional legal
opinion.
Feedback is welcome and may be provided to: web.library@aph.gov.au. Any
concerns or complaints should be directed to the Parliamentary
Librarian. Parliamentary Library staff are available to discuss the
contents of publications with Senators and Members and their staff.
To access this service, clients may contact the author or the
Library’s Central Entry Point for referral.
Back to top