Excise guidelines for the tobacco industry

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01 - INTRODUCTION

1.1 PURPOSE

1.2 WHAT IS EXCISE?

1.3 OVERVIEW OF EXCISE LEGISLATION

1.3.1 EXCISE TARIFF ACT

1.3.2 EXCISE ACT

1.3.3 EXCISE REGULATIONS

1.4 WHO ADMINISTERS EXCISE?

1.5 WHEN AM I INVOLVED IN THE EXCISE SYSTEM?

1.6 WHAT DO I DO IF I NEED MORE INFORMATION?

1.7 TERMS USED

1.8 LEGISLATION (QUICK REFERENCE GUIDE)

1.1 PURPOSE

This chapter deals with:
  • what excise is
  • an overview of excise legislation relevant to tobacco
  • who administers Excise, and
  • when you are involved in the excise system.
It provides a general introduction to excise as it relates to tobacco and tobacco products . Further detail on the matters discussed is contained in later chapters.

1.2 WHAT IS EXCISE?

The Commonwealth of Australia Constitution Act (the Constitution) provides that only the Commonwealth can impose duties of excise. [1] In Ha & Anor v. State Of New South Wales & Ors; Walter Hammond & Associates Pty Limited v. State Of New South Wales & Ors [2] (Ha), the High Court explained a duty of excise as follows:
"... duties of excise are taxes on the production, manufacture, sale or distribution of goods, whether of foreign or domestic origin. Duties of excise are inland taxes in contradistinction from duties of customs which are taxes on the importation of goods." [3]
Excise imposed by the Excise Tariff Act 1921 is imposed on the manufacture or production in Australia of specified goods. It can be seen that this clearly fits the definition of duty of excise as described by the High Court in the Ha case. The Constitution also provides that laws imposing taxation (and excise is a tax) shall only deal with the imposition of tax. The Excise Tariff Act 1921 imposes excise on relevant goods manufactured or produced in Australia and the Excise Act 1901 deals with administrative arrangements applying to the excise system.

1.3 OVERVIEW OF EXCISE LEGISLATION

The principal legislative framework for the excise system, relating to tobacco, is contained in the:
  • Excise Tariff Act 1921 (Excise Tariff Act)
  • Excise Act 1901 (Excise Act), and
  • Excise Regulations 1925 (Excise Regulations).
To change the Excise Tariff Act requires an amending act to be passed through Parliament. There are parliamentary procedures which allow for the modification of the Excise Tariff so that the changes can be implemented immediately. These procedures are known as Tariff Proposals.

For more information on Tariff Proposals see Section 1.3.1 - Excise Tariff Act.

1.3.1 Excise Tariff Act There are three key provisions in the Excise Tariff Act that operate to:
  • impose excise duty
  • identify excisable goods and the applicable duty rates (the Schedule), and
  • index the duty rate.
Imposition of Excise Duty Section 5 of the Excise Tariff Act imposes excise duty on goods manufactured or produced in Australia that are listed in the Schedule to the Act. Excise duty is imposed at the time of manufacture or production of the relevant goods. The Schedule lists the various goods that are subject to excise and the rate of duty applicable. It is sometimes referred to as the Excise Tariff. The schedule of excisable goods and the duty rates The Schedule to the Excise Tariff Act is a table that lists the goods that are subject to excise duty (if those goods are manufactured or produced in Australia). The goods that are currently subject to excise fall within three broad groups:
  • alcoholic beverages (other than wine) and spirits
  • cigarettes and other tobacco products, and
  • fuel and oils.
Within those three broad groups the schedule provides eight different items and those items are (in most cases) further broken down into subitems. The table contains a description of the items and subitems and provides the rate of duty applicable to them. The following is the tobacco products section of the table:
Excise duties
ItemSubitem Description of goods Rate of Duty
5   Tobacco, cigars, cigarettes and snuff  
  5.1 In stick form not exceeding in weight 0.8 grams per stick actual tobacco content $0.25450* per stick
  5.5 Other $318.14* per kilogram of tobacco content
* Rate of duty as at 1 August 2008. For the current rates of duty, refer to the Schedule under Excise Tariff Working Pages on our website. Tobacco, cigars and cigarettes are all classified to item 5 but only cigars and cigarettes are in stick form so, if the individual sticks do not exceed 0.8 grams in weight of tobacco (i.e. not including filters or paper), they are classified to subitem 5.1. Products such as cigars and cigarettes with more than 0.8 grams of tobacco, pipe tobacco, ready rubbed tobacco and snuff are classified to subitem 5.5.

Although snuff is listed in the Schedule to the Excise Tariff, there is currently a permanent ban on its supply, along with chewing tobacco, under subsection 65C(7) of the Trade Practices Act 1974 . [4]
It is necessary to understand what tobacco is and what plants produce tobacco leaf to determine whether a product is classified to item 5. Tobacco is defined in the Excise Tariff Act [5] as:
"tobacco leaf subjected to any process other than curing the leaf as stripped from the plant."
This means that until tobacco leaf is subjected to processes after curing it is not excisable. The species of the Nicotiana genus that are generally used for smoking, chewing or snuff are considered to produce tobacco leaf. Those species are currently Nicotiana tabacum, Nicotiana rusticum and Nicotiana sylvestris Should other species of Nicotiana be developed where the leaves are generally used for smoking, chewing or as snuff then those species would also be considered to produce tobacco leaf. Indexation of the duty rate The rates of excise are set in the Schedule to the Excise Tariff Act. However, section 6A provides that the rates of duty may increase every six months (generally 1 February and 1 August). The amount of any increase is calculated by reference to the All Groups Consumer Price Index published quarterly by the Australian Bureau of Statistics. These increases are commonly referred to as indexation. We publish these in the Commonwealth Gazette and, for ease of reference, we provide a 'working tariff' which shows an up to date rate taking account of the indexation increases. Indexation increases also apply to rates set under a tariff proposal.
Tariff proposals Tariff proposals are a means of changing the Excise Tariff (rates can be adjusted up or down; products can be added or removed) so that it is effective from the time it is proposed rather than after the enactment of an Excise Tariff Amendment Act. Most of the processes relate to Parliamentary procedures, however, there are specific provisions in the Excise Act that provide for the making of tariff proposals when Parliament is not sitting.  Effectively changes to the Excise Tariff can be notified in the Parliament or, if the Parliament is not sitting, by notice in the Gazette. We then apply the proposal as if it is law.  The tariff proposal is required to be validated by an Act within 12 months giving retrospective effect to the date of the proposal. You cannot commence proceedings against us for any action taken to collect the amount set by the tariff proposal during the periods specified in section 114 of the Excise Act. [6] Effectively this means you need to pay in line with a tariff proposal. Any increases in rates or introduction of new products through a tariff proposal technically does not impose excise but we will protect the revenue by collecting amounts in line with the proposal. If an amending Act validating the changes outlined within the tariff proposal is not passed within the prescribed periods, then any additional amounts will be refunded to you.
1.3.2 Excise Act The Excise Act imposes controls in three main areas:
  • grow, deal in and move tobacco seed, plant and leaf
  • manufacture, store and move excisable tobacco products, and
  • payment of duty for excisable tobacco products.
The Excise Act requires that tobacco not be manufactured outside our control. This is to ensure that the correct amount of duty is ultimately paid or the tobacco is otherwise satisfactorily dealt with. This is achieved by making various activities unlawful and allowing us to grant licences and permission to people to carry on those otherwise unlawful activities. Grow, deal in and move tobacco seed, plant or leaf Before you can grow tobacco seed, plant or leaf you need a producer licence granted under the Excise Act. [7] Before you can deal in (i.e. buy and sell) tobacco seed, plant or leaf you need a dealer licence granted under the Excise Act. [8] Before you can move tobacco seed, plant or leaf you need permission granted under the Excise Act. [9] Manufacture, store and move excisable tobacco products Before you can manufacture tobacco products you need a manufacturer licence granted under the Excise Act. [10] Before you can store excisable tobacco products that you did not manufacture you need a storage licence granted under the Excise Act. [11] Before you can remove excisable tobacco products on which duty has not been paid, you need permission granted under the Excise Act. [12] Generally speaking we will not grant permission to move excisable tobacco products on which duty has not been paid to a place that is not covered by either a manufacturer licence or a storage licence.

For more information about the excise licensing regime, refer to Chapter 2 - Licensing: Applications.

For more information about movement permissions, refer to Chapter 5 - Movement permissions.
Payment of duty for excisable tobacco products The Excise Tariff Act imposes duty when excisable tobacco products are manufactured. The Excise Act specifies when the duty must be paid, how and what you must report to us, the relevant time to determine the rate of duty in force, and provides a mechanism to require payment where duty has not been correctly accounted for on excisable tobacco goods.  In general terms, duty must be paid on the goods before they are delivered from licensed premises (other than being delivered to another licensed premises). Permission may be granted to deliver the goods prior to paying the duty.

For more information about payment of duty refer to Chapter 6 - Payment of duty.
1.3.3 Excise Regulations The Excise Regulations set out provisions in relation to excisable goods such as:
  • refunds and remissions, and
  • drawbacks.
The regulations also include rules specific to the tobacco industry in relation to delivering tobacco leaf for specific purposes.

For more information about remissions, refunds and drawbacks refer to Chapter 7 - Remissions, refunds, drawbacks and exemptions.

1.4 WHO ADMINISTERS EXCISE?

The Commissioner of Taxation has the general administration of the Excise Act and the Excise Tariff Act. [13] This means you have to deal with us for Australian manufactured tobacco products and any tobacco seed, plant, or leaf. As excise is only levied on products manufactured in Australia, imported tobacco products are not subject to control by us. Customs duty, under the Customs Act 1901 (Customs Act) and Customs Tariff Act 1995 (Customs Tariff Act), is applied to imported tobacco products at the same rate as for excisable tobacco products. The Australian Customs Service is responsible for administration of the Customs Act and Customs Tariff Act. Who you need to deal with is summarised in the following table.
Customs Tax Office
Australian tobacco seed, plant or leaf No Yes
Imported tobacco seed, plant or leaf Yes Yes (after it has been released from Customs control)
Australian manufactured tobacco products No Yes
Imported tobacco products not for further manufacture in Australia Yes No
Imported tobacco products for further manufacture in Australia Yes Yes

1.5 WHEN AM I INVOLVED IN THE EXCISE SYSTEM?

You are involved in the excise system if you:
  • produce tobacco seed, plant or leaf
  • deal in tobacco seed, plant or leaf
  • manufacture tobacco products (excisable goods), or
  • store or own tobacco products on which duty has not been paid.

1.6 WHAT DO I DO IF I NEED MORE INFORMATION?

If you need more information on excise, as it relates to tobacco, contact us:
  • phone 1300 137 295
  • fax (03) 9285 1168 , or
  • write to us at

    Australian Taxation Office

    PO Box 3001

    PENRITH, NSW, 2740
We will ordinarily respond to written information requests within 28 days. If we cannot respond within 28 days, we will contact you within 14 days to obtain more information or negotiate an extended response date.

1.7 TERMS USED

Excisable tobacco products Excisable goods are goods on which excise duty is imposed. Excise duty is imposed on goods that are manufactured or produced in Australia and listed in the Schedule to the Excise Tariff. As these guidelines deal with tobacco products, we have used the term excisable tobacco products. Excisable tobacco products include:
  • tobacco
  • cigars
  • cigarettes, and
  • snuff.

1.8 LEGISLATION (quick reference guide)

In this chapter, we have referred to the following legislation: 1.8.1 Excise Act 1901 Section 4 - Definitions Section 7 - General administration of Act Section 25 - Only licensed manufacturers to manufacture excisable goods Section 28 - Only licensed producers to produce tobacco leaf etc. Section 33 - Only licensed dealers to deal in tobacco leaf etc. Part IV - Manufacture, storage, producer and dealer licences Section 44 - Permission to move tobacco seed, tobacco plant and tobacco leaf Section 61A - Permission to remove goods that are subject to CEO's control Section 114 - Time for commencing action 1.8.2 Excise Tariff Act 1921 Section 1A - General administration of Act Section 5 - Duties of excise Section 6A - Indexation of rates of duty The Schedule 1.8.3 Commonwealth of Australia Constitution Section 90 - Exclusive power over customs, excise, and bounties 1.8.4 Trade Practices Act 1974 Section 65C - Product safety standards and unsafe goods
OUR COMMITMENT TO YOU The information in this publication is current at August 2008. This publication is an expression of the Commissioner's opinion on the operation of tobacco excise legislation. This publication is not legally or administratively binding on the Commissioner and is not a 'public ruling' for the purposes of Section 105-60 or Division 358 of Schedule 1 to the Taxation Administration Act 1953 . The law does not provide for legally binding rulings on tobacco excise legislation. If you feel this publication does not fully cover your circumstances, please seek help from the Tax Office or a professional adviser. Since we regularly revise our publications to take account of any changes to the law, you should make sure this edition is the latest. The easiest way to do this is by checking for a more recent version on our website at www.ato.gov.au
Excise guidelines for the tobacco industry
  Date: Version:
You are here 1 July 2006 Original document
  1 September 2014 Updated document
  1 April 2015 Current document

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