Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)General outline and financial impact
Excise Tariff Amendment (Fuels) Bill 2004
Schedule 1, Parts 1 to 5 to this bill, amends the Excise Tariff Act 1921 to:
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- provide for a differential in the rate of excise duty for high sulphur diesel (sulphur content exceeding 50 parts per million) and ultra low sulphur diesel (sulphur content not exceeding 50 parts per million), and similar products (Parts 1 and 2);
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- increase the excise duty rate by $0.00306 per litre for aviation gasoline and aviation kerosene (Part 3);
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- apply excise duty to biodiesel at the rate of $0.38143 per litre, the same rate that applies to ultra low sulphur diesel (Part 4); and
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- enable previously paid duties to be deducted in the formula for calculating excise duty payable on fuel ethanol/gasoline blends (Part 5).
Schedule 2, Parts 1 and 2 to this bill, provides for minor amendments to references in Parts 1 and 4 to commence only if the Excise Tariff Amendment Bill (No. 1) 2003 commences (Parts 1 and 2).
Excise differential for high sulphur diesel and ultra low sulphur diesel and certain similar products
Parts 1 and 2 alter the classification provisions in the Excise Tariff Act 1921 for diesel and similar products (kerosene, heating oil, stabilised crude petroleum oil and topped crude petroleum oil for use as fuel in an internal combustion engine and certain other uses) to provide for an excise differential based on their sulphur content. This measure gives effect to the Government's decision to encourage the early introduction of ultra low sulphur diesel, which will be mandated by 1 January 2006 under the Fuel Quality Standards Act 2000.
Date of effect: Excise Tariff Proposal No. 1 (2003) imposed a 1 cent per litre differential on high sulphur diesel and similar products from 1 July 2003, and Excise Tariff Proposal No. 2 (2003) imposed a further 1 cent per litre differential from 1 January 2004. These proposals were tabled in the House of Representatives on 24 June 2003. Part 1, incorporating the provisions of the Excise Tariff Proposal No. 1 (2003), is taken to have effect on and from 1 July 2003. Part 2, incorporating the provisions of the Excise Tariff Proposal No. 2 (2003), is taken to have effect on and from 1 January 2004.
Proposal announced: This measure was announced by the Prime Minister on 31 May 1999 in the Measures for a Better Environment package. Deferral of the introduction to 1 July 2003 was announced in Treasurer's Press Release No. 083 of 24 December 2002.
Financial impact: Revenue gain from the increased excise rate for high sulphur diesel is estimated at $135 million for 2003-2004 and $110 million for 2004-2005. High sulphur diesel will be fully phased out by 1 January 2006.
Compliance cost impact: There are minor costs for diesel manufacturers in adjusting systems for recording and reporting diesel production on the basis of sulphur content.
Summary of regulation impact statement
Impact: Diesel manufacturers pay an additional excise duty on high sulphur diesel of 1 cent per litre from 1 July 2003, and a further 1 cent per litre from 1 January 2004 until 1 January 2006. The increased excise duty rate for high sulphur diesel is expected to encourage manufacturers to produce ultra low sulphur diesel before the mandatory date by reducing the price disincentive for the production of ultra low sulphur diesel, which costs more than high sulphur diesel, and increasing the competitiveness of ultra low sulphur diesel in the market.
Main points:
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- The introduction of the excise differential will result in an increase in the excise duty rate for high sulphur diesel and similar products until it is phased out by 1 January 2006.
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- Manufacturers of high sulphur diesel and similar products will be required to record and report their production on the basis of sulphur content.
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- The higher excise duty rate for high sulphur diesel will make ultra low sulphur diesel more competitive in the market, providing an incentive for the production and use of ultra low sulphur diesel prior to the mandatory date.
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- Diesel users eligible for fuel payment grant schemes, other than certain agricultural users, will not be compensated for additional cost resulting from the excise differential.
Increase in excise rates for aviation fuels
Part 3 amends the Excise Tariff Act 1921 to increase excise duty rates for aviation gasoline and aviation kerosene by $0.00306 per litre. The increased excise duty rate provides supplementary funding of $6.5 million for the Civil Aviation Safety Authority in the 2003-2004 financial year.
Date of effect: Excise Tariff Proposal No. 3 (2003), increasing the excise duty rate on aviation gasoline and aviation kerosene from 1 July 2003, was tabled in the House of Representatives on 24 June 2003. Part 3 is taken to have effect on and from 1 July 2003.
Proposal announced: This measure was announced in the 2003-2004 Federal Budget on 13 May 2003.
Financial impact: This amendment is estimated to raise $6.5 million in the 2003-2004 financial year.
Compliance cost impact: Nil.
Introduction of excise duty on biodiesel
Part 4 amends the Excise Tariff Act 1901 to impose excise duty on biodiesel as fuel for use in an internal combustion engine at the rate of $0.38143 per litre.
Date of effect: Excise Tariff Proposal No. 4 (2003) was tabled in the House of Representatives on 17 September 2003 and took effect on and from 18 September 2003. Part 4 is taken to have effect on and from 18 September 2003.
Proposal announced: This measure was announced in the 2003-2004 Federal Budget on 13 May 2003.
Financial impact: Net revenue gain from biodiesel excise (and customs) duty, allowing for displacement of diesel, is estimated at $5 million for 2003-2004 and $10 million for 2004-2005. Excise payable on biodiesel will be offset by the biodiesel subsidy estimated at $15 million for 2003-2004 and $44 million for 2004-2005.
Compliance cost impact: Compliance cost for biodiesel manufacture or storage depends on the adjustment required to existing arrangements to meet excise licence conditions such as security of premises and adequate recording and reporting systems. For commercial operations the additional cost should not be significant but may be significant for a small/medium scale manufacturer.
Summary of regulation impact statement
Impact: Manufacture and storage of biodiesel and biodiesel blends must be licensed under the excise legislation. Manufacturers will pay excise duty at the rate of $0.38143 per litre. The excise duty is offset by the availability of a grant at the same rate for producers of final biodiesel fuels or final fuels containing biodiesel, effectively maintaining a zero excise rate.
Main points:
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- The introduction of excise duty on biodiesel, with the provision of an equivalent grant, provides industry certainty and time to establish markets before effective excise duty applies with the gradual reduction of the grant by five even annual instalments commencing from a date that may be specified under the Energy Grants (Cleaner Fuels) Scheme Bill 2003.
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- Manufacturers of biodiesel for use as fuel in an internal combustion engine will be required to pay excise duty at the rate of $0.38143 per litre.
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- Manufacture and storage of biodiesel and biodiesel blends must be licensed under the excise legislation.
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- There is only a small number of commercial scale manufacturers, blenders and distributors of biodiesel at this stage.
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- There are around 12 medium scale manufacturers. The viability of medium and small scale manufacturers will be affected by availability of feedstock and ability to meet excise licensing requirements and national fuel standards for biodiesel.
Part 5 amends the provisions of the Excise Tariff Act 1921 that set out the method of determining the duty payable on excisable blended petroleum products to allow previously paid duties to be deducted in the formula for calculating duty on gasoline/fuel ethanol blends. This is consistent with the formulae for other fuel blends.