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Wednesday, 10 October 1984
Page: 2038


Dr THEOPHANOUS —On behalf of the Joint Committee of Public Accounts, I present the 224th Report of the Committee on Excise Duties and Deferred Customs Duties, and I ask leave of the House to make a short statement in connection with the report.

Leave granted.


Dr THEOPHANOUS —This report concludes the Committee's inquiry into the collection of excise and deferred Customs duties. The inquiry included consideration of excise on beer, tobacco products, distilled spirits and petroleum products, as well as the process of deferring Customs duties and was extended to include the petroleum freight subsidy scheme. The Committee commenced its inquiry in 1982. However, action was interrupted by competing inquiry activities and an election early in 1983. Thus, this inquiry spanned both the previously constituted Public Accounts Committee and the current, fourteenth Public Accounts Committee. Despite these interruptions, the Committee has had time to conduct quite an extensive investigation into the area. The subject matter of the inquiry, being concerned with revenue matters, made a welcome change to the Committee's usual diet of expenditure-related inquiries.

In carrying out its inquiry the Committee took note of the criticism by some sectors of industry that during the efficiency audit there had been little consultation with industry and the audit had concentrated on one city. Consequently the Committee's inquiry strategy was designed to ensure that the sectors of industry affected by the recommendations of the efficiency audit would have every opportunity to put their view, either directly to the Committee or by submission. Accordingly, in addition to the program of public and private hearings with the Department of Industry and Commerce, the Committee received submissions from representatives of most of the subject areas and undertook visits to industry sites as diverse as the Barossa Valley in South Australia in connection with distilled spirits, a Darwin bonded warehouse holding beer, and the Caltex oil refinery at Kurnell in New South Wales.

Excise is a very important source of revenue for the Federal Government, which has exclusive power over commodity taxation by virtue of section 90 of the Constitution. In 1983-84, net excise revenue from the commodities being considered in this inquiry was $4,083m, representing approximately 9 per cent of total Commonwealth tax revenue. This compares with revenue of approximately $2, 400m derived from Customs duties on imports over the same period. The excise inquiry was based on the concerns expressed in the Auditor-General's Report on an Efficiency Audit-The Collection of Excise and Deferred Customs Duties. In that report of March 1982 the Auditor-General examined the procedures used in the collection of excise and the operation of the bonded warehouse system which is used for deferring Customs duties on imported goods. The aim of the audit was to check that controls and procedures used are adequate to protect the Commonwealth Government's revenue.

The system used by Customs for excise collection and verification is known as commodity control. Under this system the Department relies on manufacturers' declarations of the amount of excisable product produced to determine excise liability. Audit was satisfied that the principle of commodity control was sound so long as sufficient, rigorous, validating checks of the manufacturers' returns and accounts were made. It was in the area of validating checks that Audit found deficiencies. Audit was also concerned that Customs had no independent means of determining the amount of excise revenue due to the Commonwealth.

In summary, the Committee recommends that the Department take action to improve specific controls over the particular excisable commodities considered in the inquiry and to improve their general management strategy. For example, for distilled spirits the Committee recommends that spirits bottling be permitted only on licensed premises which are subject to the control of the Department of Industry and Commerce, and that resources be applied to ensure proper control over users of pure alcohol sold excise-free for industrial, scientific and educational applications.

Among the specific recommendations for distilled spirits is, first, that urgent attention be given to increasing powers exercised by officers under the Excise Act to make them comparable to those exercised under the Customs Act, particularly regarding the powers of access to documents. The Committee recommends that care be taken to safeguard civil liberties and to prevent the possible abuse of powers. Secondly, a national loss control strategy for spirits should be developed and implemented as a matter of urgency. Thirdly, the Committee reiterates the recommendation of the National Loss Control Working Party that consideration be given to a simplified approach to loss control, involving an adjustment for losses being given in the duty levied.

For beer, the Committee recommends that, first, Customs readdress the Auditor- General's recommendations on the possible use of independent sources of data to develop a means of estimating potential revenue due. Secondly, it recommends that adequate resources be made available to the Inland Revenue and Dumping Division to enable prompt implementation of systems-based reviews in the brewing industry.

The Committee's consideration of material presented to it on tobacco products prompts it to recommend an evaluation of quota controls as a regulatory device when discretionary changes in excise rates are anticipated. Other recommendations made by the committee following consideration of tobacco include : Firstly, that the Department devote greater effort to the identification and use of alternative sources of data on production volumes in order to estimate the excise revenue due from tobacco products; secondly, that adequate resources be made available to increase the rate of progress in the development of systems -based investigation techniques in the tobacco industry and to allow regular review of companies' systems; thirdly, the introduction of a computerised inventory control system to enable proper inventory control of under-bond goods by Customs. The Committee recommends that detailed examinations be made of alternative methods of excise collection, including shifting the point of excise collection for beer, tobacco products and petroleum products back closer to the completion of the production process. It is hoped that this would streamline collection procedures by decreasing the length of time that the commodities need to be under Customs control.

The Committee also makes recommendations to improve the operations of bonded warehouses and in fact suggests that the fundamental reasons for maintaining the facility should be examined. It recommends, firstly, that there be a formal entry into bond for domestically produced excisable goods with documentation and control comparable to that exercised over imported goods under bond. Secondly, the Committee considers that the Department's control procedures for bonded warehouses lack sophistication and that better use could be made of automatic data processing facilities in this area. The Committee recommends that immediate attention be given to upgrading control systems for bonded warehouses. Thirdly, it recommends that Customs promptly develop and implement a computer system which reconciles bond entries and releases to provide sufficient information to allow proper inventory control in bonded warehouses. Fourthly, the Committee endorses the Auditor-General's recommendations that Customs should analyse dwell times of goods under bond and direct investigative efforts to those goods with apparently lengthy dwell times. Similar comments apply to Audit's suggestion that efforts should be concentrated towards those warehouses which yield the greatest revenue.

The Committee suggests improvements to the petroleum products freight subsidy scheme, for example by increasing resources, including ADP resources, for application to this area and by increasing penalties for illegal practices. The Committee also recommends that there be a comprehensive review of the scheme. The Committee recommends the formulation of a detailed plan to co-ordinate the Department's operations and its ongoing review processes. It also recommends improvements in staffing in Customs, particularly regarding training and the manner in which staff are deployed.

The Committee hopes that implementation of its recommendations will increase the efficiency of Customs' excise collection operations.

During the inquiry the Committee received disturbing information regarding illicit distillation of spirit and evasion of duty. This problem has serious implications not only for Commonwealth revenue but also for the health and stability of the potable spirits industry. The Committee considers that Customs' seizure of an illicit still-the largest ever found in Australia-in July of this year highlights the immense challenges facing Customs and the need for it to be ever vigilant in its duty. The seriousness of this problem was reflected by the extent to which the investigations took place all over Australia.

The Committee wishes to thank the staff of its secretariat who were involved in the research and documentation of this inquiry which, as I mentioned before, took over three years to complete. I commend the report to honourable members and senators and I regret that copies are temporarily in short supply.