House of Representatives

A New Tax System (Tax Administration) Bill (No. 2) 2000

Supplementary Explanatory Memorandum & Correction to the Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 3 - Amendments to the Excise Act 1901

Outline of Chapter

3.1 This Chapter contains technical amendments to the Excise Act. These amendments are needed to give effect to the expansion of the DFRS to include 'like fuels'.

3.2 These amendments enable the Minister to declare a lower rate of rebate in relation to the relevant 'like fuels' from 1 July 2000 until 31 December 2000 and apply the current averaging provisions to the declared lower rate from 1 January 2001.

Context of reform

3.3 Section 78A of the Excise Act provides a legislative basis for the DFRS. Excise duty is paid at the time of production or distribution and is incorporated into the price of diesel fuel. The DFRS provides a duty rebate to the end user of the fuel when it is purchased for use in an eligible purpose.

3.4 As part of its tax reform measures, the Government is extending the DFRS from 1 July 2000 to provide a rebate for diesel and like fuels and is also adding 2 new eligible categories, marine and rail transport. Like fuels will include fuel oil and all fuels which attract the same rate of duty as diesel fuel except gasoline and certain products suitable for use as gasoline substitutes, such as, coal tar and coke oven distillates.

3.5 As heavy fuel oil attracts a concessional rate of duty (currently about 7 cents per litre compared to 44 cents per litre for diesel fuel) and light fuel oil can effectively attract that concessional rate through refund and remission arrangements, the Minister will declare a concessional rebate rate for concessional fuel usage across all eligible categories. This amendment enables the Minister to declare this concessional rate.

Detailed explanation of new law

3.6 The amendments enable the Minister to declare the rate of rebate applicable to prescribed like fuels, where those fuels are used for an eligible purpose [Schedule 4B, item 7, subsection 78A(5AAC)] . The purpose of item 6 is to allow the Minister to declare a lower rate of rebate than those contained in subsection 78A for like fuels [Schedule 4B, item 6, subsection 78A(5A)].

3.7 The purpose of subsection 78A(5AAD) is to enable the Minister to declare 2 separate rebate rates for a particular type of fuel depending on the purpose for which the fuel is used. [Schedule 4B, item 7, subsection 78A(5AAD)]

Example 3.1 The Minister will declare 2 separate rebate rates for light fuel oil - a higher rate when it is purchased for use in an internal combustion engine and a lower rate when it is purchased for other purposes. This is because light fuel oil used for other purposes attracts a partial remission of the duty paid. Light fuel oil for use in an internal combustion engine receives no remission so a higher rebate rate is necessary.

3.8 Averaging provisions presently apply in formulating the declared rate of rebate for diesel, by reference to the average rate over the previous 6 months. The amendments apply the averaging provisions to the new, lower rebate rate from 1 January 2001. The averaging provisions cannot apply for the first 6 months (July 2000 - December 2000) as there will be no concessional rebate rate in force in each of the 6 previous months [Schedule 4B, item 10, subsection 78A(5ABA)] . Item 8 makes the normal averaging rules subject to the special rule in subsection 78A(5ABA) [Schedule 4B, item 8, subsection 78A(5AA)] .

3.9 The averaging provisions will apply to declared rates for like fuels from 1 January 2001. [Schedule 4B, item 9, paragraph 78A(5AA)(b)]

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