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Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006



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Parliament of Australia

Department of Parliamentary Services

Parliamentary Library BILLS DIGEST

Information analysis and advice for the Parliament

22 May 2006, no. 140, 2005-06, ISSN 1328-8091

Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006

Richard Webb Economics, Commerce and Industrial Relations Section

Contents

Purpose........................................................................................................................................2

Background .................................................................................................................................2

Financial implications.................................................................................................................5

Main provisions ..........................................................................................................................5

Schedule 2—Amendments commencing on 1 July 2006 ..................................................... 5

Concluding comments ................................................................................................................6

Endnotes......................................................................................................................................6

2 Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006

Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006

Date introduced: 11 May 2006

House: House of Representatives

Portfolio: Attorney General

Commencement: 1 July 2006

Purpose

To amend the Customs Tariff Act 1995 to:

• strengthen Customs control over certain goods that are used to manufacture excisable goods, and

• to ensure that excise-equivalent goods are subject to the same rate of duty, when imported, as is applied under the Excise Tariff Act 1921 for the same products when manufactured or produced in Australia.

Background

The Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006 (the Bill) is one of six that implement measures proposed in the energy white paper titled Securing Australia’s Energy Future. The white paper proposed, among other things, a fuel tax credits scheme to replace the Energy Grants Credits Scheme and other concessions from 1 July 2006, and changes to excise rates. Background to the fuel tax credits scheme can be found in the Bills Digest for the Fuel Tax Bill 2006.

Customs duties are taxes imposed on imports and currently apply to a much broader range of goods than excises. The Customs Act 1901 (the Customs Act) governs the major specific customs duties. Schedule 3 to the Customs Tariff Act 1995 (the Customs Tariff) lists the goods, their classifications and duty rates. Schedule 3 is divided into 21 sections

and 97 chapters that contain Australia’s commodity classifications for traded goods. It is based on a worldwide system for classification of traded goods commonly referred to as the Harmonized System.

Customs duties on products, which would be excisable if not imported (that is, excise-equivalent goods) are usually set at the same rate to achieve equitable tax treatment. The Explanatory Memorandum for the Customs Amendment (Fuel Tax Reform and Other Measures) Bill 2006 contains a plain English definition of excise-equivalent goods:

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.

Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006 3

Excise-equivalent goods are those imported goods that, if they were produced or manufactured in Australia, would be classified in the Schedule to the Excise Tariff and subject to excise duty. This basically covers petroleum products, alcohol, and tobacco and tobacco products. Excise-equivalent goods are subject to rates of customs duty that are equal to the rates of excise duty applying to their locally manufactured equivalents. Some are also subject to ad valorem rates of duty.1

Some of the amendments in the Bill relate to aviation fuels. The following outlines the excise (and hence customs duty) treatment of these fuels.

Aviation gasoline (AVGAS) and aviation kerosene (commonly called aviation turbine fuel or AVTUR) are fuels that piston-engined and turbine-powered aircraft respectively use. In the past, excise collected on these fuels partly funded the Civil Aviation Authority. In 1995, two new bodies, Airservices Australia (Airservices) and the Civil Aviation Safety Authority (CASA), replaced the Civil Aviation Authority. Airservices provides, among other things, terminal navigation, aviation rescue and firefighting, and en route services. Airservices’ main revenue source is charges for these services. CASA’s main function is to conduct the safety regulation of civil air operations in Australia and the operation of Australian aircraft overseas. After Airservices and CASA were created, CASA received all the AVTUR excise revenue and in the order of 13 per cent of AVGAS excise revenue, while Airservices received the bulk of AVGAS excise revenue. Now, all revenue from aviation fuel excise accrues to CASA except the amount used to fund the location-specific pricing subsidy the government pays to Airservices.

In the 2006-07 Budget, the Government announced that it would provide $5.4 million in 2006-07 to continue the payment scheme for Airservices’ en route charges.2

The Explanatory Memorandum explains the reasons for the proposed changes to excise on aviation fuels:

12. Schedule 1 incorporates, in the Customs Tariff, alterations contained in Customs Tariff Proposal (No. 5) 2005 (relating to the duty rate applicable to aviation fuels). This Proposal was introduced into the Parliament on 13 October 2005 and took effect from 1 November 2005.

13. Equivalent alterations to the Excise Ta riff were made at the same time through Excise Tariff Proposal No. 1 (2005).

14. Prior to 1 November 2005, the customs and excise duty rates on aviation gasoline (avgas) were $0.03114 per litre and on aviation turbine fuel (aviation kerosene) were $0.03151 per litre. These rates comprised two elements. One element was provided to the Civil Aviation Safety Authority and the second element was used to fund the Location Specific Pricing Subsidy provided to Airservices Australia.

15. The purpose of the Location Specific Pricing Subsidy was to limit the effect of location specific pricing at smaller airports where low traffic volume limits the ability to meet the real cost of air traffic control services.

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.

4 Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006

16. In the 2004-05 Budget, the Government announced that it would continue the Location Specific Pricing Subsidy until 30 June 2005 to enable Airservices Australia to move towards longer term pricing arrangements for providing terminal navigation services. The announcement also indicated that the Location Specific Pricing Subsidy would continue to be funded from revenue raised from excise and customs duty on aviation fuels up to 31 October 2005 to ensure full cost recovery.

17. Consequently, it is proposed to reduce the customs and excise duty rates on avgas and aviation kerosene, with effect from 1 November 2005. The customs and excise duty rates on avgas are proposed to fall by $0.0026 per litre, and the customs and excise on aviation kerosene are proposed to fall by $0.00297 per litre. As a result, the customs and excise duty rates on both fuels would be equalised at $0.02854 per litre.

18. These changes took effect on 1 November 2005.3

Schedule 5 to the Customs Tariff is a list of tariff classifications and duty rates which apply to US-originating goods not entitled to a free rate of duty. The Bill proposes to

24. … repeal the existing rates of duty for aviation fuels in Schedule 5 and replace them with the rate of $0.02854 per litre, that is the rate applied to the same products in Schedule 3 of the Customs Tariff and in the Excise Tariff.

25. These amendments ensure that customs duty applicable to alcohol, tobacco and petroleum products that are US originating goods will continue to be imposed at a rate that is equivalent to the excise duty imposed, under the Excise Tariff, on the same goods when domestically produced, in accordance with the AUSFTA.4

Schedule 6 to the Customs Tariff is a list of tariff classifications and duty rates which apply to Thai-originating goods not entitled to a free rate of duty. The Bill proposes to amend Schedule 6 in a similar way as to Schedule 5:

27. In accordance with the Thailand-Australia Free Trade Agreement (TAFTA), the Customs Tariff provides a rate of customs duty of Free for Thai originating goods, unless a rate of customs duty is specified for those goods. In accordance with the TAFTA, rates of customs duty for certain alcohol, tobacco and petroleum products continue to be subject to rates of customs duty that are equivalent to the rates of

excise duty on those goods if they were locally manufactured.

28. Applicable rates of customs duty for Thai originating goods, including aviation fuels, are set out in Schedule 6 to the Customs Tariff.

29. Items 13 to 18 repeal the existing rates of duty for aviation fuels in Schedule 6 and replace them with the rate of $0.02854 per litre, that is the rate applied to the same products in Schedule 3 of the Customs Tariff and in the Excise Tariff.

30. These amendments ensure that customs duty applicable to alcohol, tobacco and petroleum products that are Thai originating goods will continue to be imposed at a

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.

Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006 5

rate that is equivalent to the excise duty imposed, under the Excise Tariff, on the same goods when domestically produced, in accordance with the TAFTA.5

Financial implications

The Explanatory Memorandum on page three contains the following estimates of the entire package of six bills.

Revenue ($m) 2006-07 2007-08 2008-09 2009-10

Australian Customs Service

Excise equivalent customs duty 250 260 270 280

Australian Taxation Office

Excise duty 240 250 260 270

Expenses($m) 2006-07 2007-08 2008-09 2009-10

Australian Taxation Office

Fuel tax credits 500 510 530 550

Impact on fiscal balance ($m)

-10 -10 -10 -10

Hence, the measures are estimated to be a net cost to revenue of $10 million annually over four years.

Main provisions

Schedule 2—Amendments commencing on 1 July 2006

Most of the amendments in Schedule 2 are ‘technical’ in nature in that they replace existing provisions in the Customs Tariff with new ones, and reclassify goods to different headings and subheadings. In general, the Explanatory Memorandum explains the changes adequately.

Some of the amendments in Schedule 2 are to ensure consistency with the Excise Tariff. An example is item 3 which deletes the definition of ‘marker’. This amendment is necessitated by the fact that a definition is no longer required, particularly given that the excise and customs duty rate on most petroleum-based fuels is 38.143 cents per litre.

Other amendments deal with the reclassification of items in the Customs Tariff. An example is item 19 which repeals two subheadings and inserts two new subheadings.

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.

6 Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006

Concluding comments

The purpose of this Bill is to amend the Customs Tariff to implement changes that are complementary to amendments contained in the Customs Amendment (Fuel Tax Reform and Other Measures) Bill 2006. As noted, the Bill is one of a package of six Bills. The other Bills are:

• the Fuel Tax Bill 2006

• the Fuel Tax (Consequential and Transitional Provisions) Bill 2006

• the Customs Amendment (Fuel Tax Reform and Other Measures) Bill 2006

• the Excise Laws Amendment (Fuel Tax Reform and Other Measures) Bill 2006, and

• The Excise Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006.

The last three, and the Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006, amend existing legislation.

The reader is referred to the Bills Digests for these other Bills for additional information.

Endnotes

1. Explanatory Memorandum, paragraphs 9 and 10, p. 5.

2. Budget Paper No. 2 2006-07, p. 315.

3. Explanatory Memorandum, paragraphs 12 to 18, pp. 5-6.

4. Explanatory Memorandum, paragraphs 24 and 25, p. 6.

5. Explanatory Memorandum, paragraphs 27 to 30, p. 7.

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.

Customs Tariff Amendment (Fuel Tax Reform and Other Measures) Bill 2006 7

© Copyright Commonwealth of Australia 2006

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Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2464.

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.