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House of Representatives

Customs Amendment (Collecting Tobacco Duties at the Border) Bill 2018

Explanatory Memorandum

(Circulated by authority of the Assistant Minister for Home Affairs, Senator the Hon Linda Reynolds CSC)

Outline

The Black Economy Taskforce's Final Report (the Report), published in October 2017, included a number of recommendations with respect to tackling illicit tobacco. In particular, the Report examined the current arrangements for the payment of import duty on tobacco products, and concluded that the warehousing of tobacco creates a risk of tobacco being distributed from these warehouses without payment of import duty. Currently, when imported tobacco products are entered into a warehouse, import duty is not paid until the products leave the warehouse under an entry for home consumption. This risk would be diminished if import duty on tobacco was paid as soon as the tobacco is imported into Australia.

The 2018 - 2019 Budget 'Black Economy Package - combatting illicit tobacco' adopts a number of recommendations from the Report, in particular the recommendation that import duties be paid on tobacco as soon as it is imported into Australia. The Customs Amendment (Collecting Tobacco Duties at the Border) Bill 2018 will amend the Customs Act 1901 (the Customs Act) to provide a legislative basis for this recommendation.

From 1 July 2019, tobacco importers will be required to pay import duty on tobacco products upon importing tobacco products into Australia. From that date, the option to enter imported tobacco products into a licensed warehouse without the payment of import duties will no longer be available.

From 1 July 2019, it will also no longer be possible for duty to be paid on tobacco products on a weekly or monthly basis in accordance with permissions granted under section 69 of the Customs Act. Any such permissions that are in force on 1 July 2019 will have no effect in respect of periods after 1 July 2019.

Further, movement permissions to allow the movement of tobacco products to or from warehouses will cease on 1 July 2019. However, movement permissions that do not relate to warehouses will continue to be granted after this date to allow tobacco products to be moved, including between wharves and customs depots.

Special arrangements will apply to tobacco products that are still in warehouses on 1 July 2019. Broadly speaking, owners of these tobacco products will be required to enter them for home consumption on that date and pay the outstanding duties unless they enter into an arrangement to pay the outstanding duty over the following 12 months, and provide a security for so doing. Owners of tobacco products who do neither of these things may have their tobacco products sold or otherwise disposed of by the Government.

Tobacco products that are in duty free stores or warehouses exclusively used to supply aircraft's stores or ship's stores on 1 July 2019 will be exempt from these transitional arrangements.

Financial Impact Statement

The 2018 - 2019 Budget 'Black Economy Package - combatting illicit tobacco' measure is expected to have the following revenue impact over the forward estimates:

Revenue ($m)

2017-18 2018-19 2019-20 2020-21 2021-22 Total
Department of Home Affairs - 10.0 3,275.0 180.0 230.0 3695.0
Australian Taxation Office - 1.0 5.5 12.0 17.0 35.5
Total - Revenue - 11.0 3,280.5 192.0 247.0 3730.5

Statement of Compatibility with Human Rights

A Statement of Compatibility with Human Rights has been completed in relation to the amendments in this Bill and assesses that the amendments are compatible with Australia's human rights obligations. A copy of the Statement of Compatibility with Human Rights is at Attachment A.

Notes on Clauses

Clause 1 - Short title

1. Clause 1 provides that this Act is the Customs Amendment (Collecting Tobacco Duties at the Border) Act 2018.

Clause 2 - Commencement

2. Subclause 2(1) provides that each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.

3. Table item 1 provides that sections 1 to 3 (and anything in this Act not elsewhere covered by this table) commences the day this Act receives the Royal Assent.

4. Table item 2 provides that Schedule 1 commences on the later of 1 July 2019 and the day after this Act receives the Royal Assent. The amendments in Schedule 1 include the substantive amendments and the transitional provisions for the Bill, including the special transitional arrangements for tobacco products that are still in warehouses on commencement.

5. Subclause 2(2) provides that any information in column 3 of the table is not part of this Act. Information may be inserted in this column, or information in it may be edited, in any published version of this Act.

Clause 3 - Schedules

6. This clause is the formal enabling provision for the Schedules to the Bill, providing that each Act specified in a Schedule is amended or repealed as set out in the applicable items of the Schedule. This Bill amends the Customs Act 1901 (the Customs Act).

7. This clause also provides that other items of a Schedule have effect according to their terms. This is a standard enabling clause for transitional, savings and application items in amending legislation.

Schedule 1 - Amendments

Part 1 - Main amendments

Customs Act 1901

Item 1 - Subsection 4(1)

8. This item inserts a new definition of tobacco products into section 4 of the Customs Act. The new definition includes all goods classified to headings 2401 (unmanufactured tobacco; tobacco refuse), 2402 (cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes) or 2403 (other manufactured tobacco and manufactured tobacco substitutes; "homogenised" or "reconstituted" tobacco; tobacco extracts and essences) of Schedule 3 to the Customs Tariff Act 1995, with the exception of those goods in subheadings 2402.90.00 or 2403.99.10 of that Schedule. These excluded products are tobacco substitutes, which are dutiable at the rate of 'Free'. As these goods are non-dutiable, there is no need to include them in the reforms targeting illicit tobacco.

9. This new definition ensures that all references to tobacco products throughout the Customs Act are consistent (including the offence of tobacco smuggling in section 233BABAD).

Items 2, 3, 4 and 5 - Subsection 68(2), at the end of subsection 68(2), subsection 68(3) and subsection 68(3B)

10. Subsections 68(2) and (3) of the Customs Act set out the various times by which an owner of goods must enter imported goods for home consumption or for warehousing. The goods may be so entered before they are imported into Australia or otherwise, must be so entered after the ship or aircraft carrying the goods first arrives at a port or airport in Australia at which the goods are to be discharged.

11. The amendment to subsection 68(2) by item 2 and the amendment to subsection 68(3) by item 4 ensure that, from 1 July 2019, it will not be possible to enter tobacco products for warehousing either before or after the tobacco products are imported into Australia.

12. The new note to subsection 68(2) (inserted by item 3) points to new section 71DG which will state that tobacco products cannot be entered for warehousing (see item 7 below). The amendment to subsection 68(3B) is a consequence of item 2, as subsection 68(3B) states how an entry for warehousing is to be communicated.

13. These amendments give effect to the recommendation in the Report that import duties be paid on tobacco as soon as it is imported into Australia, so that it will no longer be possible to enter tobacco into a licensed warehouse without the payment of import duty. The amendments will prevent tobacco products on which import duties have not been paid from being diverted from warehouses to the illicit tobacco market, thereby eliminating a significant source of illicit tobacco.

Item 6 - Before subsection 69(1)

14. Current section 69 of the Customs Act allows for permission to be granted for like customable goods and excise-equivalent goods (including tobacco products) to be delivered into home consumption without having to be entered for that purpose. Where such a permission is in place, the import duty on the goods is payable every 7 days, or on a monthly basis, rather than each time the goods are delivered into home consumption. The provision essentially allows for the payment of duty on these goods to be deferred.

15. New subsection 69(1A), inserted by this item, provides that section 69 does not apply to tobacco products. New permissions will no longer be able to be granted under this section in relation to tobacco products. This is consistent with the policy position that import duty on tobacco products must be paid at the time the tobacco is entered for home consumption, and that there will be no capacity to delay payment of that import duty.

Item 7 - Before section 71DH

16. Subdivision D of Division 4 of Part IV of the Customs Act deals with the process of making a warehouse declaration in respect of imported goods that are intended to be entered for warehousing. New section 71DG and the note to that provision (inserted by this item) make it clear that Subdivision D does not apply to tobacco products. That is, warehouse declarations cannot be made in respect of tobacco products because they cannot be entered for warehousing, as a result of the amendments made to section 68 of the Customs Act by items 2 to 5 above.

Items 8 and 9 - Section 80 and at the end of section 80

17. Section 80 in Part V of the Customs Act deals with the requirements for making an application for a warehouse licence. Under that provision, an application for a warehouse licence must be made in writing, must contain a description of the place in relation to which the licence is sought, and specify the kinds of goods that would be warehoused in that place if it were a warehouse.

18. New subsection 80(2) (inserted by item 9) provides that an application for a warehouse licence cannot be made in respect of a place to warehouse tobacco products. The amendment made by item 8 is consequential to this amendment, and reflects the creation of this new subsection.

19. These amendments complement the amendments to section 68 by items 2 to 5 above, which prevent tobacco products from being entered for warehousing.

Item 10 - After subsection 82(1)

20. Section 82 of the Customs Act sets out the conditions to which warehouse licences are subject. New subsection 82(2), inserted by this item, imposes a new condition that no tobacco products will be warehoused in the warehouse.

21. This amendment ensures that holders of warehouse licences that permitted the warehousing of tobacco and other products will be in breach of this warehouse licence condition if they warehouse tobacco products from commencement (and would be subject to a penalty under section 82C of the Customs Act). However, goods other than tobacco products can continue to be warehoused.

Item 11 - Subsection 233BABAD(7)

22. Section 233BABAD of Division 2 of Part XIII of the Customs Act contains criminal offences for importing tobacco products. Under subsection 233BABAD(1), a person commits an offence if the person imports goods, the goods are tobacco products, and the person imports the goods with the intention of defrauding the revenue. A person also commits an offence under subsection 233BABAD(2) if the person conveys goods or has them in his or her possession, the goods are tobacco products, and the person knows that the goods were imported with intent to defraud the revenue. Similar offences are in subsections 233BABAD(2A) and (2B) where the fault element is recklessness.

23. 'Tobacco products' is defined in subsection 233BABAD(7) of the Customs Act to mean goods classified to heading 2401, 2402 or 2403 of Schedule 3 to the Customs Act 1995 (except goods classified to subheading 2402.90.00 or 2403.99.10 of that Schedule). That provision is repealed by this item and inserted into section 4 by item 1 of Schedule 1 above. These amendments ensure there is a definition of tobacco products for the entire Customs Act.

Part 2 - Application and transitional provisions

Item 12 - Application provision

24. Subitem 12(1) provides that the amendments to the Customs Act that prevent tobacco products from being entered for warehousing apply to tobacco products imported into Australia before commencement and not entered for home consumption or for warehousing before commencement, as well as to tobacco products imported into Australia on or after commencement.

25. The effect of subitem 12(2) is that it will not be possible for permissions under section 69 of the Customs Act in relation tobacco products, and applications for warehouse licences to warehouse tobacco products, to be made on or after commencement. Further, any such application made before commencement and that has not been decided at commencement will be of no effect.

26. The effect of subitems 12(3) and (4) is that tobacco products on which no duty has been paid can remain in a warehouse for 7 days on and after the day of commencement without the licence holder being in breach of the new licence condition that no tobacco products can be warehoused in the warehouse. However, if the warehouse is an outwards duty free shop, an inwards duty free shop, or a warehouse that warehouses either or both ship's stores and aircraft's stores, the tobacco products can remain in the warehouse for 6 months from commencement without the licence holder being in breach of the condition. This is regardless of whether the warehouse licence was granted before, on or after commencement.

27. These provisions complement the provisions in item 13 and ensure that holders of warehouse licences will be given a short period within which to comply with the new warehouse condition, while preventing further tobacco products from being entered for warehousing.

Item 13 - Transitional provision - tobacco products warehoused at commencement

28. This transitional provision sets out how tobacco products that are still in warehouses on 1 July 2019 are to be dealt with.

29. The effect of subitems 13(2) and (3) is that owners of such tobacco products will have 7 days from commencement within which to do all things needed in order for an authority to deal to be given in respect of the goods. This could include entering the goods for home consumption and paying the outstanding duties in accordance with subsection 132AA(1) of the Customs Act. Alternatively, this could include entering into an arrangement with the Comptroller-General of Customs to pay the outstanding duty over the following 12 months, and providing a security under section 42 of the Customs Act for so doing.

30. Owners of tobacco products who do not take such action within this period may have their tobacco products sold or otherwise disposed of by the Collector, through the modified operation of section 72 of the Customs Act.

31. However, tobacco products that are warehoused in inwards duty free stores, outwards duty free stores and in warehouses which are exclusively used to supply aircraft's stores or ship's stores on commencement of the Bill will be exempt from these transitional arrangements. Such warehouses will not be subject to any particular timeframe within which to sell or otherwise dispose of their tobacco products on which duties have not been paid. It is expected that tobacco products are likely to be delivered for export from duty free providers and stores suppliers after the amendments commence.

Item 14 - Transitional provision - permissions under section 69 of the Customs Act 1901

32. The effect of this transitional provision is that any permissions under subsection 69(5) of the Customs Act (with the effect that import duty can be paid on tobacco products on a weekly or monthly basis) in force before commencement are ineffective after commencement, to the extent that they permit tobacco products to be delivered into home consumption.

Item 15 - Transitional provision - movement permissions under section 71E of the Customs Act 1901

33. This transitional provision ensures that any movement permissions under section 71E of the Customs Act in force before commencement and that permitted the movement of tobacco products before commencement are ineffective after commencement if they permit the movement of tobacco products to or from a licensed warehouses. The provision ensures that movement permissions that permit tobacco products to be moved and that do not relate to licensed warehouses, including those between a wharf and a customs depot, will continue in force after commencement.

Item 16 - Transitional provision - warehouse licence renewals

34. The effect of this transitional provision is that if a warehouse licence was in force under section 83 of the Customs Act immediately before commencement, the Comptroller-General of Customs cannot renew the licence under section 84 of the Customs Act if the only goods to be warehoused are tobacco products.

35. The Comptroller-General could renew a warehouse licence in respect of a warehouse in which a mixture of tobacco and other products were stored. However, this new licence would be subject to the condition that no tobacco products can be warehoused in the warehouse, in accordance with new subsection 82(2) (inserted by item 10 above).

Attachment A

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Customs Amendment (Collecting Tobacco Duties at the Border) Bill 2018

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Bill

From 1 July 2019, tobacco importers will be required to pay import duty on tobacco products upon importing tobacco products into Australia. From that date, the option to enter imported tobacco products into a licensed warehouse without the payment of import duties will no longer be available.

From 1 July 2019, it will also not be possible for duty to be paid on tobacco products on a weekly or monthly basis in accordance with permissions granted under section 69 of the Customs Act. Any such permissions that are in force on 1 July 2019 will have no effect in respect of periods after 1 July 2019.

Further, movement permissions to allow the movement of tobacco products to or from warehouses will cease on 1 July 2019. However, movement permissions that do not relate to warehouses will continue to be granted to allow tobacco products to be moved, including those between wharves and customs depots.

Special arrangements will apply to tobacco products that are still in warehouses on 1 July 2019. Broadly speaking, owners of these tobacco products will be required to enter them for home consumption on that date and pay the outstanding duties, unless they enter into an arrangement to pay the outstanding duties over the following 12 months, and provide a security for so doing. Owners of tobacco products who do neither of these things may have their tobacco products sold or otherwise disposed of by the Government.

Tobacco products that are in duty free stores and in warehouses which are exclusively used to supply aircraft's stores or ship's stores on 1 July 2019 will be exempt from these transitional arrangements.

Background

The Black Economy Taskforce's Final Report (the Report), published in October 2017, included a number of recommendations with respect to tackling illicit tobacco. In particular, the Report examined the current arrangements for the payment of import duty on tobacco products, and concluded that the warehousing of tobacco creates a risk of tobacco being distributed from these warehouses without payment of import duty. Currently, when imported tobacco products are entered into a warehouse, import duty is not paid until the products leave the warehouse under an entry for home consumption. The risk would be diminished if import duties on tobacco were paid as soon as the tobacco is imported into Australia.

The 2018 - 2019 Budget 'Black Economy Package - combatting illicit tobacco' adopts a number of recommendations from the Report, in particular the recommendation that import duties be paid on tobacco as soon as it is imported into Australia. The Customs Amendment (Collecting Tobacco Duties at the Border) Bill 2018 will amend the Customs Act to provide a legislative basis for this recommendation.

Human rights implications

This Bill does not engage, impact on, or limit in any way, the human rights and freedoms recognised or declared in the international instruments listed in the definition of human rights at section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Conclusion

The Bill is compatible with human rights as it does not raise any human rights issues.


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