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					                      2008-2009-2010



THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA




              HOUSE OF REPRESENTATIVES




   EXCISE TARIFF AMENDMENT (TOBACCO) BILL 2010

  CUSTOMS TARIFF AMENDMENT (TOBACCO) BILL 2010




             EXPLANATORY MEMORANDUM




                (Circulated by the authority of the
          Treasurer, the Hon Wayne Swan MP and the
   Minister for Home Affairs, the Hon Brendan O’Connor MP)
Table of contents
General outline and financial impact....................................................... 5

Chapter 1            Increased tax on tobacco products .............................. 7
General outline and financial impact
Increased tax on tobacco products
        These two Bills amend the Excise Tariff Act 1921 and the Customs Tariff
        Act 1995 to increase the excise and excise-equivalent customs duty rate
        applying to tobacco, cigars, cigarettes and snuff by 25 per cent, from
        $0.26220 to $0.32775 per stick not exceeding in weight 0.8 grams per
        stick actual tobacco content, and from $327.77 to $409.71 per kilogram
        for other tobacco.

        Date of effect: 30 April 2010.

        Proposal announced: On 29 April 2010, excise and customs notices were
        published in the Commonwealth Government Special Notices Gazette
        No. S63 and No. S62, respectively.

        Financial impact: This measure will have these revenue implications:

           Revenue ($m)       2009-10    2010-11   2011-12   2012-13    2013-14
         Australian
                               205        870       900        920        960
         Taxation Office
         Australian Customs
         and Border             25        260       270        280        290
         Protection Service
         Impact on fiscal
                               230        1,130     1,170     1,200      1,250
         balance

        These revenue impacts do not include the following estimated increased
        goods and services tax collections:

           Revenue ($m)       2009-10    2010-11   2011-12   2012-13    2013-14
         Goods and services
                                25        115       115        120        130
         tax

        Compliance cost impact: Minor transitional compliance and
        administration costs are expected from this rate change.




                                                                                  5
Chapter 1
Increased tax on tobacco products

Outline of chapter
         1.1       This chapter explains amendments to the respective Schedules
         of the Excise Tariff Act 1921 and the Customs Tariff Act 1995 to alter the
         excise and excise-equivalent customs duties applying to tobacco products.



Context of amendments
         1.2       Excise is a tax on certain goods produced in Australia including
         alcohol (other than wine), tobacco and fuel. Imported goods comparable
         to those subject to excise, known as ‘excise-equivalent goods’, attract
         customs duty that includes a component at the same rate as the excise rate
         so that imports and locally-produced goods are taxed in an equivalent
         fashion. This component is commonly referred to as ‘excise-equivalent
         customs duty’.

         1.3        The Government increased the excise rate applying to ‘tobacco,
         cigars, cigarettes and snuff’, and the relevant excise-equivalent customs
         duty rates applying to the equivalent imported products by 25 per cent,
         applying on and from 30 April 2010. This equates to an increase from
         $0.26220 to $0.32775 for sticks of tobacco (for example, cigarettes or
         cigars) not exceeding 0.8 grams per stick actual tobacco content in weight,
         and from $327.77 to $409.71 per kilogram for other tobacco (for example,
         loose tobacco). The rates of excise and excise-equivalent customs duty on
         ‘tobacco, cigars, cigarettes and snuff’ are subject to indexation on a
         half-yearly basis and are adjusted in February and August each year.

         1.4       These amendments increase the rate for item 5 of the Schedule
         to the Excise Tariff Act 1921 and the relevant rates in the Customs Tariff
         Act 1995.




                                                                                      7
Excise Tariff Amendment (Tobacco) Bill 2010
Customs Tariff Amendment (Tobacco) Bill 2010


Summary of new law
            1.5       This measure changes the Schedule to the Excise Tariff Act 1921
            to increase the rate in item 5.1 from $0.26220 to $0.32775 for sticks of
            tobacco not exceeding 0.8 grams of actual tobacco content in weight, and
            increase the rate in item 5.5 from $327.77 to $409.71 per kilogram for
            other tobacco. This measure also amends Schedule 3 to the Customs
            Tariff Act 1995 so that the rates in the Schedule accord with changes to
            the Schedule to the Excise Tariff Act 1921. It is noted that the rates for
            item 5 of the Schedule to the Excise Tariff Act 1921 and the
            excise-equivalent subheadings of Schedule 3 to the Customs Tariff
            Act 1995 are subject to indexation on a half yearly basis and are adjusted
            in February and August each year.



Comparison of key features of new law and current law

                            New law                                Current law
                                             Excise duty rate
              Item 5.1 of the Schedule to the Excise   Item 5.1 of the Schedule to the Excise
              Tariff Act 1921 has a rate of $0.32775   Tariff Act 1921 has a rate of $0.26220
              per stick.                               per stick.
              Item 5.5 of the Schedule to the Excise   Item 5.5 of the Schedule to the Excise
              Tariff Act 1921 has a rate of $409.71    Tariff Act 1921 has a rate of $327.77
              per kilogram of tobacco content.         per kilogram of tobacco content.
                                  Excise-equivalent customs duty rate
              Subheadings 2402.10.20, 2402.20.20       Subheadings 2402.10.20, 2402.20.20
              and 2403.10.30, in Schedule 3 to the     and 2403.10.30, in Schedule 3 to the
              Customs Tariff Act 1995 have rates of    Customs Tariff Act 1995 have rates of
              $0.32775 per stick.                      $0.26220 per stick.
              Subheadings 2401.10.00, 2401.20.00,      Subheadings 2401.10.00, 2401.20.00,
              2401.30.00, 2402.10.80, 2402.20.80,      2401.30.00, 2402.10.80, 2402.20.80,
              2403.10.70, 2403.91.00 and               2403.10.70, 2403.91.00 and
              2403.99.80 in Schedule 3 to the          2403.99.80 in Schedule 3 to the
              Customs Tariff Act 1995 have rates of    Customs Tariff Act 1995 have rates of
              $409.71 per kilogram of tobacco          $327.77 per kilogram of tobacco
              content.                                 content.



Detailed explanation of new law
            1.6      ‘Tobacco, cigars, cigarettes and snuff’ are classified in item 5 of
            the Schedule to the Excise Tariff Act 1921. Tobacco is defined in the
            Schedule to the Excise Tariff Act 1921 as ‘tobacco leaf subjected to any
            process other than curing the leaf as stripped from the plant’.

8
                                                         Increased tax on tobacco products



         1.7        Imported tobacco products and manufactured tobacco substitutes
         are classified under several subheadings in Schedule 3 to the Customs
         Tariff Act 1995. The subheadings that receive equivalent tax treatment to
         item 5 of the Schedule to the Excise Tariff Act 1921 are: 2401.10.00,
         2401.20.00, 2401.30.00, 2402.10.20, 2402.10.80, 2402.20.20, 2402.20.80,
         2403.10.30, 2403.10.70, 2403.91.00 and 2403.99.80.

         1.8       Additionally, Schedules 5, 6, 7 and 8 to the Customs Tariff
         Act 1995 specify rates of duty for certain goods, including tobacco
         products, imported under the Australia-US Free Trade Agreement, the
         Thai-Australia Free Trade Agreement, the Australia-Chile Free Trade
         Agreement and the ASEAN-Australia-New Zealand Free Trade
         Agreement, respectively. The Bill amends the relevant items in these
         Schedules so that the increased rates of duty apply to the above tobacco
         products when imported under these Free Trade Agreements.

         1.9      These Bills seek to legislate the increased rates of tobacco excise
         and excise-equivalent customs duty.

         1.10      The amendments set out in the Excise Tariff Amendment
         (Tobacco) Bill 2010 alters the Schedule to the Excise Tariff Act 1921 to
         increase the rate applicable under item 5.1 from $0.26220 per stick to
         $0.32775 per stick, and the rate applicable under item 5.5 from $327.77 to
         $409.71 per kilogram for other tobacco. [Schedule 1, items 1 to 2 of the Excise
         Tariff Amendment (Tobacco) Bill 2010]

         1.11      Additionally, Schedule 3 to the Customs Tariff Act 1995 is
         altered by the Customs Tariff Amendment (Tobacco) Bill 2010 so that the
         relevant rates of excise-equivalent customs duty accord with changes to
         the Schedule to the Excise Tariff Act 1921. [Schedule 1, items 1 to 11 of the
         Customs Tariff Amendment (Tobacco) Bill 2010]

         1.12      The Bill also amends rates of duty for the items in Schedules 5,
         6, 7 and 8 of the Customs Tariff Act 1995 that correspond to the above
         subheadings in Schedule 3. The amendments to the Customs Tariff
         Act 1995 ensure that the excise equivalent component of customs duty on
         imported ‘tobacco, cigars, cigarettes and snuff’ is the same as the rates of
         excise duty applicable to those goods when produced in Australia and will
         apply to goods when imported from all countries. [Schedule 1, items 12 to 55
         of the Customs Tariff Amendment (Tobacco) Bill 2010]



Application and transitional provisions
         1.13      In accordance with subsection 5(2) of the Excise Tariff Act 1921,
         these excise tariff amendments are taken to have commenced on
         30 April 2010. [Section 2 of the Excise Tariff Amendment (Tobacco) Bill 2010]

                                                                                        9
Excise Tariff Amendment (Tobacco) Bill 2010
Customs Tariff Amendment (Tobacco) Bill 2010

            1.14      The amendments to the Customs Tariff Act 1995 are taken to
            have commenced on 30 April 2010. In addition, the amendments apply to
            goods entered for home consumption on or after 30 April 2010 and to
            goods that have been imported into Australia before that date where the
            time for working out the rate of import duty on the goods had not occurred
            before that date. For example, this application provision will apply to
            goods that were warehoused on importation before 30 April 2010 and not
            entered into home consumption until on or after that date. [Schedule 1,
            item 56 of the Customs Tariff Amendment (Tobacco) Bill 2010]




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