Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 1 - Crude oil excise duty
Outline of chapter
1.1 This chapter explains amendments to the Excise Tariff Act 1921 (Excise Tariff Act) that streamline certain crude petroleum oil excise provisions and reduce the rates of excise duty for old and new crude oil.
1.2 Items 1 to 24 of Schedule 1 to this bill alter subsection 3(3) and sections 6AA, 6B, 6C and 6E of the Excise Tariff Act.
Context of amendments
1.3 On 15 August 2001, the Government announced changes to the Excise Tariff Act to encourage oil exploration and production both onshore and offshore. The changes will streamline current legislation and reduce the rates of excise duty for old and new crude oil.
1.4 Alteration to the Excise Tariff Act will give effect to this announcement.
Summary of new law
1.5 Certain crude oil provisions of the Excise Tariff Act will be amended to provide for reduced rates of excise duty for old and new crude oil, remove threshold price provisions applicable to old oil, and correct technical deficiencies affecting the operation of delayed-entry oil provisions.
| New law | Current law |
|---|---|
| The incremental scale of production of old crude oil (subsection 6B(4)), used to calculate the amount of excise duty payable, will be repealed and replaced with a new scale of 5 quantity tranches.
The lowest tranche on which excise duty becomes payable will be in excess of 200,000 kilolitres, an additional tranche will be included for production over 500,000 kilolitres to 600,000 kilolitres, and the highest quantity tranche (to which the top marginal rate of excise duty applies) will be in excess of 600,000 kilolitres. |
The incremental scale of production of old crude oil (subsection 6B(4)) provides 6 quantity tranches, the lowest being in excess of 50,000 kilolitres and the highest being in excess of 500,000 kilolitres. |
| The rates of duty applicable to the old crude oil production quantity tranches will be repealed and replaced with a new scale of rates (subsection 6B(7)) as follows: 20% for the lowest quantity tranche, 30%, 40%, 50% for the additional quantity tranche over 500,000 kilolitres to 600,000 kilolitres, and 55% for the highest quantity tranche of in excess of 600,000 kilolitres. | The rates of duty applicable to the old crude oil production quantity tranches are 5% for the lowest quantity tranche, 15%, 20%, 40%, 70%, and 75% for the highest quantity tranche (subsection 6B(7)). |
| All threshold price provisions that apply to old crude oil, including indexation of threshold prices, will be repealed (sections 6B and 6AA). | Threshold price provisions apply to old crude oil (sections 6B and 6AA). |
| All references to relevant oil and certain crude petroleum oil will be omitted and replaced with old oil (section 6B). | Old oil is referred to as relevant oil and certain crude petroleum oil in the Excise Tariff Act. |
| The incremental scale of rates of excise duty for new crude oil will be repealed and replaced with a new scale, with the top 3 rates reduced to 15%, 20%, and 30% for the top marginal rate (subsection 6C(7)). | The top 3 rates of excise duty for new crude oil are 20%, 30%, and 35% for the top marginal rate (subsection 6C(7)). |
| The provision for calculating duty on delayed-entry oil (section 6E) will be repealed and replaced with a new provision that bases duty calculation on the applicable petroleum price. | Duty for delayed-entry oil (section 6E) is calculated on the basis of import parity price. |
Detailed explanation of new law
1.6 Current crude oil excise arrangements under the Excise Tariff Actprovide for 3 categories of excisable crude oil. These are summarised in Table 1.1.
| Category of oil | Definition | Duty provision/excise tariff item in the Schedule to the Excise Tariff Act |
|---|---|---|
| old (relevant) | discovered and in production before 18 September 1975 | section 6B; subparagraph 17(A)(2)(b) |
| new | produced from accumulations discovered on or after 18 September 1975 | section 6C; subparagraph 17(A)(2)(a) |
| intermediate | produced from old fields not developed before 23 October 1984 | section 6D; subparagraph 17(A)(2)(aa) |
1.7 Section 6B prescribes an incremental scale of rates of excise duty for relevant (otherwise known as old) crude petroleum oil, based on the quantity of oil produced and entered for home consumption during a financial year - that is, the duty rate increases as annual production increases.
1.8 The rates of duty will be reduced by amending the quantity tranches of oil produced and the rates of duty applicable to the tranches.
1.9 The 6 quantity tranches specified in subsection 6B(4) will be repealed and substituted with 5 quantity tranches that provide for the following:
- •
- the lowest quantity tranche to which excise duty applies is over 200,000 kilolitres to 300,000 kilolitres;
- •
- an additional tranche is included for production over 500,000 kilolitres to 600,000 kilolitres; and
- •
- the highest quantity tranche, to which the top marginal rate of excise duty applies, is in excess of 600,000 kilolitres.
1.10 The rates of duty applicable to the quantity tranches specified in subsection 6B(7) are repealed and substituted with a new scale of rates as follows:
- •
- 20% for the lowest quantity tranche;
- •
- 30% and 40% for the next 2 tranches;
- •
- 50% for the additional quantity tranche over 500,000 kilolitres to 600,000 kilolitres); and
- •
- 55% for the highest quantity tranche of in excess of 600,000 kilolitres.
1.11 As a consequence of the amendment to the rate of duty applicable to the highest quantity tranche in subsection 6B(7), the definition of variable percentage in subsection 6B(1) will be repealed.
1.12 The formula for determining the notional amount of excise duty payable for old oil (subsection 6B(3)) includes an added duty component that may apply in circumstances where the threshold price is exceeded and the quantity of oil produced exceeds a threshold quantity.
1.13 Section 6B will be amended by repealing all provisions, definitions and references relating to threshold price, threshold quantity and added duty from the provisions applying to old crude oil.
1.14 With the removal of the threshold price provisions from section 6B, redundant section 6AA also will be repealed.
1.15 Old oil is presently referred to in section 6B as relevant oil.
1.16 To more readily identify old oil provisions, all references in section 6B to relevant oil will be omitted and replaced with old oil.
1.17 As a consequence of this change, old oil also will replace certain crude petroleum oil in the heading to section 6B.
1.18 Section 6C prescribes an incremental scale of rates of excise duty for new crude petroleum oil, based on the quantity of oil produced and entered for home consumption during a financial year.
1.19 The rates of duty specified in subsection 6C(7) will be repealed and substituted with 10%, 15%, 20%, and 30% for the top marginal rate.
1.20 Section 6E provides a transitional mechanism for calculating duty on delayed entry oil - that is, oil which was produced while subject to excise, but was not sold until the areas production was exempt from excise by virtue of a Resource Rent Royalty agreement having commenced (under the Petroleum Revenue Act 1985 ). Under this provision, calculation of duty is based on import parity price.
1.21 As import parity price is no longer used to calculate duty for crude oil, section 6E will be repealed and substituted with an amended provision that, consistent with other categories of crude oil, bases the calculation of duty on applicable petroleum price, as specified in section 6AB.
1.22 A minor technical amendment to subsection 3(3) also will be made to ensure that the calculation of duty for delayed-entry oil is consistent with that of other categories of crude oil.
Application and transitional provisions
1.23 The amendments to be made by this bill to old and new crude oil provisions are taken to have commenced on and from 1 July 2001.
1.24 The amendments to delayed-entry oil provisions will commence on the date of Royal Assent.
1.25 The provision having transitional effect will apply to ensure that old and new crude oil provisions in force before the commencement of the Excise Tariff Act continue to apply to old and new crude oil that is produced and entered for home consumption before the commencement day.