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2002
THE PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
HOUSE OF REPRESENTATIVES
Tobacco Excise
Windfall Recovery (Assessment) Bill 2002
EXPLANATORY
MEMORANDUM
(Circulated by authority of Mr Stephen Smith,
MP)
TOBACCO EXCISE WINDFALL RECOVERY (ASSESSMENT) BILL
2002
General outline
The purpose of this Bill is to assist in the
recovery of an estimated $250 million windfall from tobacco wholesalers and
retailers to fund preventative health care measures. This Bill is one of a
package of three Bills. This Bill assesses the windfall amounts involved. The
other two Bills, referred to in clause 3, may be referred to by the provisional
titles of “Tobacco Excise Windfall Recovery (Tax) Bill 2002” and the
“Tobacco Excise Windfall Recovery (Funding for Health Benefits) Bill
2002”. Because of restraints imposed by the Standing Orders of the House
and the Constitution, a Private Member is unable to introduce the other Bills
and their introduction is dependent on government action.
This Bill can
stand alone. If passed without the other Bills being passed, the persons,
companies and amounts involved will be identified by the Taxation Commissioner,
ready for such action as the Parliament then wishes to take. The total amount of
the tobacco excise windfall will be ascertained and tabled in Parliament under
section 10 of the Act.
Background
On 5 August 1997, in the
case of Ha v New South Wales, the High Court ruled that State tobacco
franchise fees were unconstitutional. The Commonwealth subsequently passed
retrospective legislation (including the Excise Tariff Amendment Act (No.3)
1997 and the Customs Tariff Amendment Act (No.3) 1997) which
increased Commonwealth customs and excise duties on tobacco by $167 per kilogram
from 7 August 1997, and made provision to pay the equivalent of the old
State franchise fees to the States.
Relying on a loophole in the
Commonwealth legislation, the tobacco wholesalers did not pay franchise fees
collected during the period 1 July 1997 to 6 August 1997 to the States or to the
Commonwealth.
The amount of the windfall has been estimated to be up to
$250 million.
On 6 December 2001, in the case of Roxborough v
Rothmans, the High Court ruled that five retailers who had brought an
action against tobacco wholesalers could recover the windfall. The High Court
was unable to rule that the windfall should be paid to the Commonwealth as the
Court was only able to make a ruling between the parties to the court action.
The ruling only related to a small proportion of the windfall. Justice Kirby
argued strongly that the Federal Parliament make provision for resolving the
problem:
The “windfall” should remain with the wholesaler
to await the legislative measures (if any) for disgorgement to the benefit of
users of tobacco products, or otherwise, as the Federal Parliament may
enact.
Other legal actions have been launched to obtain repayment of
the windfall. One case has been launched on behalf of other tobacco retailers
who did not participate in the Roxborough case. Another case has been
launched on behalf of consumers with the goal of having the windfall paid into a
trust fund for public purposes.
The outcomes of these cases are unclear
and both will take time to resolve. Rather than relying on the uncertain
outcomes of ongoing legal action, it is appropriate for the Commonwealth to act
to ensure the windfall is recovered for the benefit of the public at large. The
Commonwealth can do this by requiring:
• Tobacco wholesalers to pay
as a tax to the Commonwealth the amount of the windfall collected from retailers
but not passed on to the States or the Commonwealth; and
• Any tobacco
retailers who are successful in legal action against tobacco wholesalers to pay
the amount they recover as tax to the Commonwealth.
The amounts required
to be paid to the Commonwealth can then be used by the Commonwealth to fund new
preventative health care measures which discourage smoking, improve population
health by encouraging healthy choices through better nutrition and a more active
lifestyle, and otherwise contribute to good health
outcomes.
Financial Impact Statement
This Bill and the
two other proposed Bills referred to seek to ensure that the windfall that
tobacco wholesalers and retailers received during the period 1 July 1997 to
6 August 1997 is paid to the Commonwealth and then returned to the
community through the implementation of the health care measures outlined
above.
Notes on Clauses
Clause 1 This clause provides
that the Act is cited as the Tobacco Excise Windfall Recovery (Assessment)
Act 2002.
Clause 2 This clause provides that the Act commences on
Assent.
Clause 3 This clause outlines the purpose of the Act. The Act is
to make arrangements for the assessment of the windfall amounts paid to tobacco
wholesalers but not passed on to a State or to the Commonwealth. The amounts
assessed are intended to be used as the basis of a tax to recoup the windfall
amounts to the Commonwealth. This tax would be imposed and administered by
another Act [provisionally entitled the Tobacco Excise Windfall Recovery
(Tax) Act 2002]. The amounts assessed will also be used as the basis of
expenditure, equivalent to the total windfall recovered, on health related
measures. This expenditure would be appropriated by a third Act [provisionally
entitled the Tobacco Excise Windfall Recovery (Funding for Health Benefits)
Act 2002].
Clause 4 This clause provides that the Act is to bind the
Crown.
Clause 5 This clause defines expressions within the meaning of the
Act. Definitions include the applicable period (1 July 1997 to 6 August 1997),
and a list of relevant State legislation.
Clause 6 This clause provides
that the Act is to be administered by the Commissioner of
Taxation.
Clause 7 This clause defines the windfall amount as the amount
that would have been payable under State law as a tobacco franchise fee during
the applicable period (i.e. 1 July 1997 to 6 August 1997), if the State law had
been valid and continued in effect.
Clause 8 Para 1 reduces the windfall
amount in cases where the franchise fee has in fact not been retained but paid
to the State.
Para 2 reduces the windfall amount in cases of refunds to
another person or corporation. This covers cases where a wholesaler has returned
the franchise fee to the retailer.
Clause 9 This clause defines who is to
be assessed for the windfall amount and how they are to be assessed. There are
two classes of assessee.
Under para 1, any person or corporation who
would have been liable to pay a tobacco franchise fee under State law, if the
State law had been valid and continued in effect, is liable to be assessed for a
windfall amount calculated as provided by clauses 7 and 8 (i.e. the franchise
fee retained by them and not paid to the State). This would generally apply to
wholesalers who have retained the franchise fee.
Under para 2 any person
or corporation to whom an amount has been refunded under para 2 of clause 8
liable to be assessed for a windfall amount equal to the amount refunded to
them. This would generally apply to retailers to whom wholesalers have refunded
the franchise fee.
Clause 10 This clause requires the Commissioner of
Taxation to report to the Minister, for presentation to Parliament, the total
windfall amount and a breakdown of the total between different classes of
persons or corporations assessed. (Does not require individual assessments to be
reported.)
Clause 11 This clause requires an annual report on the
operation of the Act to be presented to Parliament.
Clause 12 This clause
authorises the Commissioner to make arrangements with a State about matters in
connection with this Act.
Clause 13 Para 1 authorises regulations to be
made to assist in the administration of the Act. Para 2 authorises regulations
to prescribe penalties for offences against the regulations.