Excise guidelines for the tobacco industry

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01 - INTRODUCTION

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 .

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 by Parliament. However, there are parliamentary procedures which allow for the modification of the Excise Tariff so that changes proposed to Parliament by the government 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), it provides a description of the items and subitems and specifies the rate of duty applicable to each. 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.

The following is the tobacco products section of the Schedule:

Excise duties

Item

Subitem

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

excise duty rate per stick

 

5.5

Other

excise duty rate per kilogram of tobacco content

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 ACT, 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.

Although tobacco seed, plant or leaf (up to and including leaf that has been cured) are not excisable goods, they are subject to special provisions in the Excise Act which strictly control production and/or possession of these goods and provide for penalties.

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. Prior to 1 February 2014, both alcohol and tobacco duty rates were indexed each 6 months by reference to the All Groups Consumer Price Index published quarterly by the Australian Bureau of Statistics, in accordance with section 6A of the Excise Tariff Act.

Alcohol continues to be indexed as described above in accordance with section 6A but on and from 1 March 2014, tobacco is indexed by reference to the AWOTE (Average Weekly Ordinary Time Earnings) figures produced bi-annually by the Australian Bureau of Statistics in accordance with section 6AA of the Excise Tariff Act.

The AWOTE figure is published twice a year, in June and December. The indexation of duty rates for tobacco now occurs in March and September.

Indexation increases also apply to rates which are set by a Tariff Proposal and not yet passed into law.

We publish these new rates in the Commonwealth Gazette and, for ease of reference, we provide a 'working tariff' which shows up-to-date rates taking account of the indexation increases. Use the following link: Excise Tariff working pages

Tariff Proposals

The term 'Tariff Proposal' is a reference to the proposal in Parliament by the government of an Excise Tariff, or Excise Tariff alteration. A Tariff Proposal can lower or raise duty rates and add, remove or alter the description of goods which are subject to excise duty.

We immediately apply a Tariff Proposal put before Parliament by the government as if the law had already been amended.

If Parliament is not sitting, the Commissioner is empowered under section 160B of the Excise Act to publish a Notice in the Gazette of the intention of the government to put a Tariff Proposal within 7 sitting days of Parliament.

Such a Notice is deemed to be a Tariff Proposal as described above and so we also apply such a Notice as though it was already law. You cannot commence proceedings against us for any action taken to collect the amount set by a Tariff Proposal during the periods specified in section 114 of the Excise Act. [6]

An amending Act must subsequently be made within 12 months to validate any excise duty collected by us pursuant to the particulars of a Tariff Proposal.

If an amending Act validating the changes outlined within the tariff proposal is not passed within the prescribed periods, then any additional amounts paid 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 production, storage and movement of excisable tobacco products such as cut tobacco and cigarettes is controlled by the granting (or refusal) of licenses to manufacture or store excisable tobacco on which the duty has not been paid and various permissions to move them or deliver them into home consumption.

Excise controls and powers are broadly applicable to goods which are excisable goods. Because tobacco seed, plant and leaf are not excisable goods, special provisions relating to them are contained in the Excise Act to allow similar control to be exercised over them as is exercised over excisable goods.

The Excise Act imposes strict controls and has penalties for growing, dealing, possession and movement of tobacco seed, plant and leaf without authority.

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]

Permission is generally only granted to move excisable tobacco products on which duty has not been paid to another licensed premise or place.

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 into home consumption; or
  • in accordance with periodic settlement permission

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 tobacco such as:

  • the circumstances allowing refunds, remissions and drawbacks
  • the period for making refund applications
  • amount of duty for tobacco leaf related penalties

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 but also in relation to any tobacco seed, plant, or leaf whether it comes from Australia or elsewhere.

Imported tobacco products are not subject to control under the Excise Act unless used in the manufacture of excisable goods. Customs duty, under the Customs Act 1901 (Customs Act) and Customs Tariff Act 1995 (Customs Tariff Act), is applied to imported tobacco products at rates equivalent to the excise duty applied to locally manufactured tobacco products.

The Australian Customs and Border Protection Services (Customs) is responsible for administration of the Customs Act and Customs Tariff Act. However, under delegation, we administer the licensing and associated permissions for imported tobacco that are referred to as excise equivalent goods (EEG's).

Who you need to deal with is summarised in the following table.

 

Customs

Tax Office

Australian tobacco seed, plant or leafNoYes
Imported tobacco seed, plant or leafYesYes (after it has been released from Customs control)
Australian manufactured tobacco productsNoYes
Imported tobacco products not for further manufacture in AustraliaYesYes
Imported tobacco products for further manufacture in AustraliaYesYes

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)
  • store or own tobacco products on which duty has not been paid; or
  • deliver tobacco products into home consumption (the domestic market) and are responsible for paying the excise duty.

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 137 290
  • fax 1300 130 916 , or
  • write to us at

    Australian Taxation Office

    PO Box 3001

    ALBURY, NSW, 2640

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 6AA - Indexation of tobacco duty rates

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

Excise guidelines for the tobacco industry
  Date: Version:
  1 July 2006 Original document
You are here 1 September 2014 Updated document
  1 April 2015 Current document

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