Explanatory Memorandum(Circulated by authority of the Minister for Justice and Customs, Senator the Honourable Amanda Vanstone)
General outline and financial impact
The purpose of this Bill, which includes three schedules, is to enact a range of amendments to the Customs Tariff Act 1995 (the Customs Tariff).
Schedule 1 implements the Government's decision to remove the customs duty from 268 so called 'nuisance tariffs'. 'Nuisance tariffs' have a duty rate of 5% or less, each attracted less than $100,000 revenue in financial year 1996-97 and cover goods where there are few or no local producers.
The Schedule also inserts an additional note in Chapter 57 of Schedule 3 to the Customs Tariff to direct that all tufted carpets be classified to heading 5703.
Schedule 2 imposes an excise equivalent duty on imported toluene and similar chemicals which may be used in fuel substitution activities.
Schedule 3 inserts a 1 January 2005 phasing rate of duty for automatic voltage regulators of subheading 9032.89.11. This amendment corrects an oversight in the application of the post 2000 passenger motor vehicle tariff arrangements which were legislated in Act No. 141 of 1999 (Customs Tariff Amendment (ACIS Implementation) Act 1999).
Regulation impact statement
In July 1998, the then Industry Minister, the Honourable John Moore MP, identified lower business input costs as a key area for future reform. In this context, the then Department of Industry, Science and Tourism was directed to undertake a review of nuisance tariffs. For the purposes of the review, nuisance tariffs were defined as tariff items that attract a duty of 5 per cent or less; raise less than $100,000 in revenue a year (in 1996-97); and apply to items where there are few or no local producers. The purpose of the review was to identify and remove the tariff on items that offer little or no protective benefit to industry. A preliminary list of 1058 nuisance tariff items was compiled in consultation with the Australian Customs Service (Customs) and released in August 1998 for consultation with industry and the Industrial Supplies Office Network (ISONET). Following industry consultation which identified local producers for a number of these items, a final list of 268 items was announced on 8 December 1999.
A tariff is a duty paid on an imported item. It is designed to protect local manufacturers by making their products more competitive against similar imported products. However, where there is no domestic producer to protect, the tariff is solely a cost to those local manufacturers who use the imported item as a business input and/or consumers.
Government action is needed to instigate legislative changes to the Customs Tariff to remove the duties on those nuisance tariff items. Removing those tariffs will aid business by reducing their input costs and by reducing the compliance costs associated with the various existing tariff concession schemes.
No action will require business to continue to pay inflated prices for their imported inputs, even where there are no local producers to protect. This cost is ultimately passed on to consumers in the form of higher sales prices.
The Government has identified lower business input costs as a key area for future reform in improving the competitiveness of local industry. In this context, the former Minister for Industry, Science and Tourism announced a review of nuisance tariffs in July 1998. The review excluded tariffs covered by other Government announcements, including those tariffs relating to the passenger motor vehicle and textiles, clothing and footwear industries.
The purpose of the review was to identify and remove nuisance tariffs on items that offer little or no protective benefit to industry.
Removing the duty on those items identified in the nuisance tariff review requires amendments to the Customs Tariff. This is the only option to achieve the objectives of the Government's nuisance tariff review.
A tariff exists to protect domestic producers. Where there is no domestic producer to protect, the cost of the tariff is passed on to local manufacturers who use the imported item as a business input. Ultimately, this cost is then passed on to domestic consumers in the form of higher sales prices. Alternatively, where an imported item is placed directly on the market, consumers are also required to cover the cost of the tariff in the final sales price.
In addition, compliance costs are incurred by businesses that wish to use the various tariff concession schemes. This adds to business costs, which again, are ultimately passed on to consumers.
Government is the only party to benefit from a nuisance tariff, namely from the revenue it collects on the imported items (estimated to be $7.2 million for the 268 tariff lines on 1998-99 figures). In the short-term, while the removal of the tariff on the 268 items will result in $7.2 million of Government revenue forgone, local industry is likely to benefit in the long-term through improved competitiveness.
Removing the duty on those items identified in the nuisance tariff review will benefit industry in the form of lower input costs and reduce compliance costs associated with current tariff concession schemes. It will also benefit consumers in the form of lower sales prices.
There will be no additional costs to business and consumers. The only cost will be borne by the Government in the form of an estimated $7.2 million annual revenue forgone (based on 1998-99 figures) from the removal of the tariff on the 268 items identified in the review.
There will be no significant change in administrative costs for Customs as a result of the proposed amendments to the Customs Tariff, as it costs much the same to administer a zero rate of tariff as it does a positive one. While some administrative savings may result from a reduction in claims by business for tariff concessions, these savings are expected to be minimal.
A preliminary list of nuisance tariffs was released in August 1998 for consultation with industry.
The consultation process involved:
- the then Industry Minister writing to peak industry groups requesting that they identify which items on the preliminary list of nuisance tariffs should be retained;
- the Industry Department sending a similar letter and the tariff list to second tier industry associations;
- placing press advertisements in major newspapers;
- including details of the review on the Department's website; and
- the Department providing information about the review to interested parties.
Following the completion of consultations with industry, the Government received a total of 89 responses, a number of which were consolidated responses from industry associations. This process identified a number of items from the original list for retention.
In November 1998, the Department of Industry, Science and Resources consulted ISONET to check the validity and comprehensiveness of the responses to the review.
A second round of industry consultation identified further items for retention on the basis of local production. This left a final list of 268 tariff items for removal. Customs duty was removed from these tariff subheadings by the tabling of Customs Tariff Proposal No. 7 (1999) in the House of Representatives on 8 December 1999. The reductions in the rates of duty took effect on 15 December 1999.
Removing the duty on those items identified by business in the nuisance tariff review is the preferred option to achieve the objectives of the Government's review. This option will require amendments to the Customs Tariff to remove the duty on those items identified in the review.
The incorporation of the amendments contained in Customs Tariff Proposal No. 7 (1999) in the Customs Tariff is required within 12 months of the tabling of the Proposal - ie by 8 December 2000.
The Productivity Commission (PC) is currently conducting a review of Australia's General Tariff Arrangements. The terms of reference for the review require the Commission to inquire and report by 20 July 2000 on the scope for a post-2000 reduction in the general tariff (covering all rates of 5 per cent or less, and excluding the Passenger Motor Vehicle and Textiles, Clothing and Footwear Sectors). The PC has been asked to consider the community-wide costs and benefits of options for future general tariff arrangements. A draft report was released for public comment on 25 May 2000. The Government will take into account the Commission's findings and the recommendations of its final report when considering future general tariff reforms.
Financial impact satement
It is estimated that $7.2 million of revenue will be forgone annually by the removal of nuisance tariffs.
The aim of imposing excise equivalent rates of duty on toluene, benzene, xylenes and mixed alkylbenzenes is to reduce the financial incentive to misuse these chemicals for illicit blending with excise paid petroleum products. As arrangements are in place to remit and refund the duty for legitimate uses of these products, the net revenue effect is zero.
Any financial impact from these change was costed into the amendments legislated in the Customs Tariff Amendment (ACIS Implementation) Act 1999 - Act 141 of 1999.
Notes on clauses
A Bill for an Act to amend the Customs Tariff Act 1995, and for related purposes.
Subclause 1 - Clauses 1, 2 and 3 commence on the day on which this Act receives the Royal Assent.
Subclause 2 - Schedule 1 is taken to have commenced on 15 December 1999.
Subclause 3 - Schedule 2 is taken to have commenced on 10 March 2000.
Subclause 4 - Schedule 3 commences seven days after the day on which this Act receives the Royal Assent.
This clause is the formal enabling provision for the Schedules to the Bill, providing that each Act specified in the Schedules is amended in accordance with the applicable items of the Schedules. The clause also provides that the other items of the Schedules have effect according to their own terms.
The amendments contained in this Schedule were tabled in the House of Representatives in Customs Tariff Proposal No. 7 (1999) on 8 December 1999.
On 19 September 1999, the Minister for Industry, Science and Resources announced that the Government would remove the customs rate of duty on 'nuisance tariffs'. Items 1 to 44 of this Schedule implement that decision.
'Nuisance tariffs' can generally be described as tariff subheadings on which minimal customs duty is collected and which therefore provide little tariff assistance for Australian manufacturers. The removal of these tariff rates will provide lower input costs for local industry and cheaper retail prices for Australian consumers.
The decision was implemented by introducing free rates of duty for 268 tariff subheadings. For most of the subheadings the current duty rate was repealed and replaced with a free rate of duty. About another forty subheadings were amalgamated with subheadings which were already free, to provide new composite subheadings. This amalgamation is in accordance with the Government's policy of tariff simplification.
Item 46 of this Schedule inserts Additional Note 2 in Chapter 57 of Schedule 3 to the Customs Tariff to direct importers that hand tufted carpets are classified in tariff heading 5703. This action flows from a decision of the Administrative Appeals Tribunal.
The amendment ensures that the classification of hand tufted carpets is consistent with the Harmonized Commodity Description and Coding System, the international convention for classifying goods
The amendments contained in this Schedule were tabled in the House of Representatives in Customs Tariff Proposal No. 1 (2000) on 9 March 2000.
In January 1998, the Government introduced the fuel
substitution minimisation legislation to combat the loss of revenue resulting from fuel substitution. This occurs when fuel which is subject to a duty free or concessional rate of duty is used as a transport fuel. Further amendments to the legislation were made in November 1999 and have been successful in controlling most fuel substitution activities.
However, it became apparent that fuel substitution activities were occurring using toluene, a product of the petroleum refining industry, commonly used as a solvent in the chemical and paint industries. This was made possible because of the different treatment of toluene in the Excise Tariff and the Customs Tariff. When manufactured locally, toluene is covered by the Excise Tariff and subject to excise duties. However, when the same product was imported, it was not subject to excise equivalent rates of duty through the Customs Tariff.
The amendments contained in this Schedule redress the anomaly. Items 2 to 5 impose excise equivalent rates of duty on toluene, benzene and xylenes of Chapter 29 of the Customs Tariff and mixed alkylbenzenes of Chapter 38. While there was no evidence of fuel substitution using products other than toluene, the other products are chemically similar to toluene and could potentially be used for fuel substitution purposes. They are also covered by the terms of the Excise Tariff.
Regulations and administrative measures have been implemented to ensure that legitimate users of these imported chemicals are not disadvantaged. The regulations were enacted on 8 March 2000, operative from 10 March 2000, the date of operation of these tariff amendments.
Item 1 of this Schedule updates the Table to section 19(1) of the Customs Tariff. This Table provides a link between customable and excisable goods (alcoholic beverages, tobacco and petroleum products) and permits customs rates of duty to be adjusted in line with movements in the excise rate of duty, as a result of indexation.
The Customs Tariff Amendment (ACIS Implementation) Act 1999 (Act No. 141 of 1999) implemented the Government's decision in relation to the post-2005 level of industry assistance for the passenger motor vehicle industry. The Act inserted, from 1 January 2005, a 10% general rate of duty for all goods the subject of the Motor Vehicle Manufacturing Plan.
One tariff subheading, 9031.89.11, covering automatic voltage regulators of a kind used in passenger motor vehicles, was erroneously excluded from the list of tariff subheadings. This amendment inserts the 1 January 2005 phasing rate of duty for this subheading.