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13996 at, No, 97 2936 4 ISBN 0644 519819
1998
THE PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
HOUSE OF REPRESENTATIVES
EXCISE
TARIFF AMENDMENT BILL (No. 1)
1998
EXPLANATORY
MEMORANDUM
(Circulated
by authority of the Minister for Customs and Consumer Affairs,
the Hon.
Warren Truss MP)
EXCISE TARIFF AMENDMENT BILL (No. 1) 1998
OUTLINE
The principal purpose of this Bill is to insert
into the Excise Tariff Act 1921 (“the Act”) various
amendments contained in Excise Tariff Proposals tabled in the House of
Representatives during 1998.
The Bill incorporates into the Act Excise
Tariff Proposals Nos. 1 and 2 of 1998, the effect of which:
. reduce the
rate of duty on aviation gasoline ("avgas") from 3 July 1997, following a
decision by the Government not to increase (apart from Consumer Price Index
increases) general aviation’s contribution to the funding of Airservices
Australia (“Airservices”) derived by means of an excise on avgas;
and
. correct technical defects identified in the structure of Item 11 of
the Schedule to the Act (“the Tariff ”) inserted by the Excise
Tariff (Fuel Rates Amendments) Act 1997, which is referred to throughout
this explanatory memorandum as the “Amendment Act.”
The Bill
also makes two technical amendments to the Act, which:
. make clear that
changes made by the Amendment Act to the way crude oil is assessed for excise
duty do not create any new entitlement to enter crude oil at a lesser,
concessional rate; and
. delete a reference in the Tariff to
“item 3”, which is no longer current.
REGULATION IMPACT
STATEMENT
REDUCTIONS IN THE EXCISE DUTY ON AVIATION GASOLINE
PROBLEM OR ISSUE IDENTIFICATION
Most general aviation
operators use piston engined aircraft powered by avgas. They contribute to the
cost of air traffic control and navigation services provided by Airservices
through excise and customs duty on avgas. This system of cost recovery is
inequitable in that many general aviation operators (for example, agricultural
operators) only rarely use the services provided by Airservices, yet still pay
the duty.
SPECIFICATION OF THE DESIRED OBJECTIVE
As part of
its aviation policy, the Government has undertaken to implement, after
consultation with the aviation industry, a more equitable system for funding
general aviation’s contribution to Airservices. In the interim it has
stopped any increases in Airservices’ component of the avgas duty, apart
from Consumer Price Index increases.
While major changes to
Airservices’ charging system are yet to be introduced, the 0.6 cents per
litre reduction addressed in this legislative amendment is in line with the
Government’s policy objective. The reduction results from close scrutiny
by Airservices of the forecast cost of services provided to general aviation and
a review of the forecast level of activity by the general aviation sector in
1997-98.
IDENTIFICATION OF OPTIONS
Two options were
available:
(a) Retain the levels of duty at the previous rates until a
new system of charging is introduced which fully addresses the
Government’s policy objective.
(b) Reduce the level of duty on
avgas as subsequently implemented in Excise Tariff Proposal No. 2 (1997) and
Excise Tariff Proposal No. 2 (1998) and Customs Tariff Proposal No. 6 (1997) and
Customs Tariff Proposal No.1 (1998). This Bill only addresses alterations made
in the Excise Tariff Proposals.
ASSESSMENT OF
IMPACTS
(a) Retention of the avgas duty at the previous rate would
have meant that general aviation operators would not have received a justifiable
reduction in the price they pay for avgas.
(b) The selected option will
deliver savings to users of avgas in the order of $0.7M in 1997-98 in customs
and excise duty. The users who will benefit include private aircraft owners,
sport aviation participants, flying training school operators, agricultural
aircraft operators and smaller charter operators. Where applicable, there will
be an opportunity for aircraft operators to pass on savings to end users such as
student pilots, farmers and charter customers.
Costs to fuel company
suppliers of avgas and to the Government in administering the change to rates of
duty have been minimal.
The financial benefit to avgas users far exceeds
the small administrative costs associated with implementing the changed rates of
duty.
CONSULTATION
Airservices conducts a regular program
of consultation with peak aviation industry bodies on a range of major issues,
including its proposed schedule of charges for the following year. The proposed
reduction in the duty on avgas was raised in Airservices’ consultation
with industry in April 1997, in advance of finalising prices for its services
for 1997-98. Aviation industry representatives were not opposed to the
reduction.
Airservices will consult extensively with the aviation industry on
new charging arrangements before major changes are
implemented.
CONCLUSION AND RECOMMENDED OPTION
The
preferred option is to implement the legislative changes to formalise the 0.6
cents per litre reduction in the duty on avgas notified in Special Commonwealth
Gazette No. S261 on 2 July 1997 and was tabled in the House of
Representatives in 27 August 1997 as Excise Tariff Proposal No. 2 (1997).
Following the passage of the legislation package implementing the fuel
substitution reforms, which commenced on 31 January 1998, this decrease was
re-instated by a notice published in the Gazette on 18 February 1998.
This notice was incorporated in Excise Tariff Proposal No. 2 (1998) which was
tabled in the House of Representatives on 11 March 1998. This course is
consistent with the Government’s policy objective in respect of
Airservices’ charges to general aviation. It delivers savings to the
aviation industry with only minimal administrative costs.
IMPLEMENTATION AND REVIEW
The reduction in duty was
implemented in July 1997 and February 1998 through the Tariff Notice and
Proposal process under section 160B of the Excise Act 1901. This process
permits immediate changes in the level of duty. In this matter it avoids the
speculative trade in fuel products, which could adversely affect revenue
projections. As noted, implementation incurred minimal administrative
costs.
This reduction in avgas duty precedes a major review of
Airservices’ charges to industry, including the use of duty on avgas as a
means of recovering the costs of services to the general aviation sector.
Airservices will consult extensively with the aviation industry before new
charging arrangements are implemented.
The other amendments made to the
Act in this Bill are regarded by the Office of Regulatory Review as being
technical in nature, having no additional impact on
industry.
FINANCIAL IMPACT STATEMENT
The reduction in duty
on avgas has financial implications for Airservices Australia , the general
aviation sector of the aviation industry, consumers of services provided by the
general aviation industry, and fuel company suppliers of
avgas.
Airservices Australia
The reduction in duty will
reduce Airservices' revenue by approximately $0.7M in 1997-98. Airservices has
assessed the cost of providing air navigation services to avgas powered aircraft
and the level of activity by these aircraft (and hence consumption of avgas) in
1997-98 and concluded that a reduction in the rate of duty of 0.6 cents per
litre was warranted. The expected fall in revenue matches Airservices'
anticipated reduction in the cost of providing services to avgas powered
aircraft. Therefore, the financial impact is expected to be
neutral.
General aviation industry
Most operators in the
general aviation sector use avgas powered piston engined aircraft.
The
reduction in duty will deliver savings of around $0.7M to operators of avgas
powered aircraft The operators who stand to benefit include charter operators,
flying training schools, agricultural aircraft operators, private aircraft
owners and sport aviation participants.
The financial impact on these
operators will be positive.
Consumers
There is potential
for consumers of services provided by avgas powered aircraft owners to benefit
from reduced prices if savings in fuel costs are reflected in lower prices.
Potential beneficiaries include student pilots, farmers and passengers flying
with smaller airlines.
There is a potential positive, but only small,
financial impact on consumers.
Fuel companies
Fuel
companies bear an administrative cost in implementing new prices as a result of
changes in duty. The cost is relatively small.
The changes to the
relevant duty rates contained in the Bill are otherwise neutral in
effect.
EXCISE TARIFF AMENDMENT BILL (No. 1) 1998
NOTES ON CLAUSES
Clause 1 - Short Title
This
Clause provides for the Act to be cited as the Excise Tariff Amendment Act
(No. 1) 1998.
Clause 2 -
Commencement
Subclause (1) provides that subject to the effect of the
subclauses listed below, this Act commences operation on the day it receives the
Royal Assent.
Subclause (2) provides that the amendments to the Schedule
to the Act made in items 1 and 2, dealing with the bringing of onshore oil into
the excise regime, are taken to have commenced at the time of the commencement
of the Amendment Act, which was 31 January 1998.
Subclause (3) provides
that the amendments to the Tariff made by item 4, dealing with the level of
excise payable on avgas, are taken to have commenced on 3 July
1997.
Subclause (4) provides that the amendments to the Tariff made in
items 5 and 6, dealing with corrections to the duty payable on avgas, are taken
to have commenced immediately after the commencement of the Amendment Act, which
was 31 January 1998.
Subclause (5) provides that the amendments to the
Act made to the Tariff by items 7 to 14, dealing with technical amendments,
following, are taken to have commenced at the time of the commencement of the
Excise Tariff Amendment Act (No.4) 1997, which was 31 January 1998.
Clause 3 - Schedule(s)
This clause is a formal enabling
provision, providing that each Act specified in the Schedule to this Act, the
Excise Tariff Amendment Act (No.1) 1998, (in this case, only the
Excise Tariff Act 1921), is amended according with the applicable items
of the Schedule. The clause also provides that the other items of the Schedule
have effect according to their terms. This is a standard enabling clause for
transitional, savings and application or declaratory items in amending
legislation.
SCHEDULE 1
AMENDMENTS TO THE EXCISE TARIFF ACT 1921
Item 1 - After subsection 3(1)
Prior to 31 January
1998, the first 30 million barrels of crude oil produced from onshore oil fields
were exempt from excise. This exempt crude oil was formally defined as "exempt
onshore oil".
As part of the fuel substitution reforms (discussed later
in this explanatory memorandum), which came into effect on that day, all
production of onshore oil became subject to the excise regime. This now
includes the first 30 million barrels from each onshore field.
The
Amendment Act replaced the former definitions of "exempt onshore oil" and
"exempt onshore field" with the new definitions of "pre-threshold onshore oil"
and "onshore field" (items 5 and 6 of Schedule 1 to the Amendment Act). These
new definitions removed all references to the word "exempt" from the previous
definitions in order to remove the connotation that the first 30 million barrels
was exempt from excise duty.
As a result of the new definitions, the
previous by-laws which prescribed the onshore fields under the definition of
"exempt onshore field" were revoked and replaced by new by-laws under the
definition of "onshore field", which took effect from 31 January 1998.
At
the time the new definitions came into effect, some existing producers of
onshore oil had used up their 30 million barrels exemption under the old
definitions. Others had partially used their entitlement. It was not intended
that the new definitions or the new by-laws would create any new entitlements to
excise concessions, in particular, a further 30 million barrels excisable at the
rate of "Free". However, it could be argued the new definitions do create such
new entitlements.
The Item inserts a declaratory provision into
subsection 3(1) of the Act (the definitions provision) to make clear the new
definitions inserted into the Act by the Amendment Act do not create any new
entitlements. For those producers who have completely used up their 30 million
barrels exemption, there is to be no new entitlement to any concession. For
those producers who have partially used their exemption under the old
definitions, they will be entitled to continue to claim the duty "Free"
exemption under the new definitions up to the 30 million barrel
limit.
Item 2 - Subsection 3A(1)
In addition to the
amendments outlined in the previous explanatory note, all other references to
“exempt onshore field" in excise legislation were repealed and replaced
with references to "onshore field”. However, one reference to "exempt
onshore field" was overlooked. This reference is contained in subsection 3A(1)
of the Act, which relates to guidelines which the Minister for Primary
Industries and Energy may make, that are to be taken into account by the Chief
Executive Officer of Customs when making by-laws prescribing an exempt onshore
field. Item 2 makes the necessary correction, by substituting the term “
exempt onshore field”, with “onshore field”.
Item 3
- Interpretation provisions in, and relating to, the Schedule
At the
commencement of the Tariff, several definitional and interpretation provisions
are included. The penultimate paragraph commences with the phrase "Except in
item 3". Item 3 of the Schedule to the Act was repealed in 1983. However, the
phrase mentioned above was not removed. Item 3 has the effect of removing these
words from the Tariff.
Item 4 - Subparagraph 11(A)(3)(a) of the
Schedule
Item 5 - Subparagraph 11(H)(1)(a) of the
Schedule
Item 6 - Subparagraph 11(H)(2)(a) of the
Schedule
During 1997, the Government decided to reduce the excise
payable on avgas, effective from 3 July 1997.
Prior to 31 January 1998,
the excise duty payable on avgas was assessed under subparagraph 11(A)(3)(a) of
the Tariff.
On 31 January 1998, the legislation package implementing the
fuel substitution reforms (discussed below) came into effect. Part of these
reforms involved a complete restructure of item 11 of the Tariff. This was
effected by the passage of the Amendment Act. Avgas is now classified to
subparagraph 11(H)(1)(a) (if contained in packages not exceeding 210 litres) or
11(H)(2)(a) (if contained in larger packages). The duty rate was set at $0.18003
per litre. This rate did not reflect the decision referred to in the first
paragraph of this explanatory note.
The aggregate effect of these
changes sets the excise duty payable on avgas at $0.17403 per litre, as from 3
July 1997.
Item 7 After subparagraph 11(B)(2)(c) of the
Schedule
Item 8 After subparagraph 11(C)(2)(b) of the
Schedule
Item 9 After paragraph 11(E)(3) of the
Schedule
Item 10 After paragraph 11(F)(3) of the
Schedule
Item 11 After paragraph 11(G)(4) of the
Schedule
Item 12 After subparagraph 11(H)(2)(d) of the
Schedule
Item 13 After subparagraph 11(I)(3)(c) of the
Schedule
Item 14 After subparagraph 11(J)(2)(c) of the
Schedule
On 31 January 1998, a package of 9 Acts, which implements
the Government's Budget decision to combat revenue loss through the minimisation
of fuel substitution practices, commenced operation.
This involved,
amongst other things, a new classification structure for petroleum products
under item 11 of the Tariff.
However, the petroleum industry was
concerned the new structure may create misunderstandings in relation to the
excise liability of some petroleum products which are intended for uses
otherwise than as fuel.
These items propose technical amendments to the
new item 11, so as to eliminate any potential misunderstandings, or any
unintended windfall gains. These amendments involve the introduction of new
subheadings into most of the subitems of item 11. These subheadings cover
petroleum products for use otherwise than as fuels and provide excise duty rates
of $0.42797 per litre for unleaded products and $0.44972 per litre for leaded
products in line with the existing duty differential between such products.
These technical amendments do not widen the scope of the fuel substitution
minimisation legislation.