Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 5 - Regulation impact statement
5.1 The objective of the measures proposed by this Bill is to provide a statutory framework to support administrative action directed against the illicit tobacco trade and against arrangements that constitute a high risk that duty on excisable goods will be evaded.
5.2 Although the measures focus primarily on illegal activity, the following elements of the proposed amendments have a regulatory impact:
- a revised scheme for licences to be held by persons who undertake activity regulated by the Excise Act 1901 (Excise Act); and
- proposals to regulate the movement of tobacco leaf.
Each of these elements are addressed in turn.
5.3 Currently, the Excise Act only provides for the licensing of manufacturers of excisable goods. A registration requirement applies to producers and dealers of tobacco, and premises are declared to be an approved place in relation to excisable goods on application by the proprietor. There are limited grounds on which a licence can be revoked or on which an application can be refused. This provides opportunities for persons to exploit existing authorities conferred by the Excise Act to engage in illicit activity or to evade excise duty.
5.4 To remedy these deficiencies, the licensing scheme is to be reinforced with specific criteria against which a decision to refuse to grant, or to cancel, a licence can be made. The licensing scheme is also to apply consistently to all activities that are regulated for excise purposes - the production of, and dealing in, tobacco and the manufacturing and storage of all excisable goods.
5.5 An alternative option may have been to preserve existing distinctions and to specify different criteria for licensing decisions relating to each type of licence. This option would have complicated the law, and was rejected for consistency reasons.
5.6 The revised licensing scheme will require certain information relating to the licence holder and their associates to be given to the Australian Taxation Office (ATO) at the time a licence is applied for and, if a change to that information occurs after the application is made, within a 30 day period from the time of that change.
5.7 Although the revised requirements will apply to new applicants from the time the scheme commences, persons who are licensed, registered or have approved place declarations in force at the time the new scheme commences may be required to provide similar information. This Bill provides for regulations to be made that will specify the information to be provided by persons who are taken to be licensed under the transitional arrangements.
5.8 Information to be provided in accordance with the requirements of the revised scheme is used to assess the risk of non-compliant behaviour by the applicant or licence holder and would be relevant to the exercise of the discretion to refuse to grant a licence (in the case of an applicant) or to either suspend or cancel a licence (in the case of a licence holder).
5.9 The revised licensing scheme will apply to producers and dealers in tobacco seeds, plant and leaf. There are, however, very few producers and dealers entering the tobacco industry.
5.10 The scheme will also apply to manufacturers of all excisable goods and to proprietors of approved places in relation to excisable goods. There are some 300 licensed manufacturers covering all excisable goods (tobacco, alcohol and petroleum products). There are 165 establishments that are approved places for excise purposes and many of these are associated with licensed manufacturers.
5.11 It is not expected that there will be costs of any significance involved in providing licensing information. However, the fact that this information is considered in deciding whether to grant a licence will deter persons who, if licensed, would constitute a risk to revenue.
5.12 There has been consultation on the proposal with tobacco growers' cooperatives and tobacco importers and with industry associations representing licensed excise manufacturers and entities holding goods on which excise duty has not been acquitted, such as duty-free stores. They have supported proposals for stricter licensing arrangements.
5.13 The revised licensing scheme is designed to exclude persons who present a high risk of non-compliance with the excise laws from engaging in activity that is regulated for excise purposes.
5.14 The scheme is unlikely to impose additional costs of any significance on persons taken to be licensed under the transitional arrangements or on new applicants who are compliant or likely to be compliant with excise legislation.
5.15 Currently there are no restrictions on the movement of tobacco leaf. This provides wide scope for the product to enter the illicit tobacco market.
5.16 It is proposed that the movement of tobacco leaf be subject to express permission being given by the ATO. The requirement for a movement permission will apply from the time it is imported or leaves the premises of a licensed producer or dealer, until it is delivered to a manufacturer's factory. Currently, permission given for the movement of excisable goods on which duty has not been paid is documented in writing.
5.17 Although it is proposed that written permission also be a means of authorising the movement of tobacco leaf, it is also proposed that an approved form of label be attached to tobacco bales to authorise their movement. Tobacco bale labels will uniquely identify each bale and will provide a means of easily identifying unauthorised movement of tobacco leaf.
5.18 After being stripped from the plant and cured, tobacco leaf is ordinarily packed in bales and transported for sale. The bales are ultimately purchased by manufacturers and unpacked by them for processing into consumable tobacco products.
5.19 The current lack of regulation over the movement of tobacco leaf has allowed tobacco leaf to be easily diverted to the illicit market. Controls over the movement of tobacco will assist enforcement agencies to identify and seize the illicit product.
5.20 Producers who are licensed to grow tobacco will be required to obtain permission to move tobacco leaf from their premises. Permission in writing may be given for particular deliveries or, on a continuing basis, for delivery during a specified period to a particular location where, for example, the bales are sold.
5.21 Other persons, such as licensed dealers or manufacturers will also be required to obtain permission to move tobacco leaf. It is expected that the majority of these permissions will be issued on a continuing basis.
5.22 Tobacco bales currently have labels attached or are otherwise marked to identify them for marketing purposes. It is anticipated that the proposed labels will add value to the marketing practices currently employed by the growers' cooperatives, by enabling them to trace the movement of bales from grower to manufacturer.
5.23 As the proposed labelling system is in an early stage of development, the costs of using the labels cannot be reliably estimated but is not expected to be significant. The attaching of the proposed label to tobacco bales will add a relatively minor task to the production of tobacco.
5.24 There has been extensive consultation with tobacco growers' cooperatives and the tobacco manufacturers on measures to counter the illicit market. They have indicated support for proposals to regulate the movement of tobacco leaf.
5.25 The requirement for bales of tobacco leaf to have a tobacco bale label attached while not located at premises specified in the licence of a producer, dealer or manufacturer is expected to result in some, but not significant, additional costs.
5.26 The tobacco bale labels are expected to assist in detecting the illicit product and thereby help protect the legitimate tobacco industry.