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Bills Digest No. 148 2003-04
Excise Tariff Amendment (Fuels) Bill 2004
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Excise
Tariff Amendment (Fuels) Bill 2004
Date Introduced: 1 April 2004
House: House
of Representatives
Portfolio: Treasury
Commencement: The individual parts of the Excise Tariff Amendment
(Fuel) Bill 2004 have various commencement dates. They are dealt with
under the heading Main Provisions.(1)
The Excise Tariff Amendment (Fuel) Bill 2004 (the Bill)
proposes the following changes to the Excise Tariff Act 1921:
-
the implementation of a different excise duty rate (EDR) for ultra
low sulphur diesel (ULSD) and high sulphur diesel (HSD),
-
an increase in the excise on aviation fuel to provide additional
funding to the Civil Aviation Safety Authority,
-
the imposition of an excise duty on biodiesel, bringing this currently
untaxed fuel into the existing customs and excise duty system.
The implementation of EDRs for diesel fuels based on their different
sulphur content was proposed by the Prime Minister in his Policy Initiative
Measures for a Better Environment on 31 May 1999.(2)
The promotion of ULSD by imposing a lower EDR on ULSD and a higher one
on high sulphur content fuels is based on environmental considerations.
The Explanatory Memorandum states that:
Low sulphur fuels provide environmental and health benefits
through reduced emissions of hydrocarbons and oxides of nitrogen that
affect air quality and particulate emissions known to cause respiratory
problems.(3)
However, the introduction of ULSD alone is not sufficient to achieve
these results. Rather, it is necessary to use certain engine technology,
especially in the form of appropriate catalysts, to gain the full benefit
of ULSD.(4) Accordingly, critics have argued that whilst the
introduction of ULSD was long overdue, it may not bring the wanted outcome
as the average Australian diesel run car does not have the necessary technology.(5)
The Government recognises this limitation and has stated that the facilitation
of a ‘broader adoption of greenhouse friendly engine technology that depends
upon low sulphur fuels’ will be a subsequent measure.(6)
The proposed changes follow an international trend. Many countries regulate
the sulphur content in diesel.(7) Currently, the prescribed
contents vary from country to country, ranging between 30 and 150 parts
per million (‘ppm’). The new quality standard for diesel fuels attracting
the lower EDR in Australia will be the “Euro 4” standard or a sulphur
content of less than 50 ppm.(8)
The introduction of the different EDRs was initially planned for 1 January
2003, with the second stage of the increases for the high sulphur diesel
fuels to be introduced on 1 January 2004.(9) However, the introduction
was delayed by the Government until 1 July 2003 to avoid possible diesel
fuel price increases for farmers facing drought conditions.(10)
The second increase has taken effect retrospectively on 1 January 2004.
As a result, the period between the first and the subsequent EDR increase
for high sulphur fuels has been significantly shortened.
The increase in excise on aviation fuels, i.e. for aviation gasoline
and kerosene was announced by the Federal Government in the 2003–2004
Federal Budget and will take effect retrospectively from 1 January 2004.
The increase is designed to raise additional funds to support the operation
of the Civil Aviation Safety Authority (CASA).
The introduction of an excise duty on biodiesel was announced by the
Federal Government in the 2003–2004 Federal Budget and introduced as Excise
Tariff Proposal No. 4 (2003) and will take effect retrospectively on 18
September 2003.
Placing an excise duty on this currently untaxed alternative liquid fuel
carries out the Federal Government’s commitment to implement a homogenous
excise and customs duty system for all liquid fuels irrespective of their
derivation.(11) This commitment is the result of a recommendation
made by the Fuel Taxation Inquiry.(12)
Biodiesel is a clean burning alternative fuel which can be produced from
vegetable oils and animal fats by a process called ‘lipid transesterification’.
It has similar properties to petroleum fuels and can be blended with petroleum
based diesel fuels at any rate.(13).
The proposal to impose an excise duty on bio-diesel has been criticised.
It has been argued that the imposition of excise duties for biodiesel
in Australia would raise the price for this alternative fuel to an extent
where it becomes uncompetitive with the traditional petroleum diesel.(14)
To assist in the prevention of this, the Government has introduced a
grant scheme according to which licensed biodiesel producers can recover
increased costs through subsidies.(15) The Government stated
that:
Grants will then be provided for production or importation
of biodiesel, such that the current effective excise rate of zero for
pure biodiesel is continued, with this being extended to the biodiesel
component of blends, until 30 June 2008. (16)
However, in the same announcement, the Government explained that these
grants will only be available for a limited period of time with the grants
being phased out in five even annual instalments from 1 July 2008 to 1
July 2012.
Overseas, the European Commission recently decided to permit the German
Government to exempt bio fuels, including biodiesel, from fuel taxes.(17)
The European Commission accepted that alternative fuels face particular
difficulties competing against the traditional fuels and allowed Germany
to subsidise the alternative fuel by granting a tax exemption.(18)
The proposed amendments in Schedule 1, Part 1 of the Bill, introduce
different EDRs for diesel by reference to their sulphur content. Part
1 of the Bill will take effect retrospectively on 1 July 2003.
Item 2 repeals paragraph 6G(1)(b) of the Excise Tariff Act
1921, substituting it with a new paragraph (b). This new subsection
stipulates different EDRs applicable to diesel product other than recycled
products, determined by reference to their sulphur content.
Products with a sulphur content below 50 ppm attract the lower EDR, whilst
those products with a sulphur content above this level attract the higher
EDR.
In relation to UDSL the Bill prescribes the current, uniform level of
excise for liquid fuel products, i.e. $0.38143. For fuels which exceed
a sulphur content of 50 ppm, an initial increase of one cent to $0.39143
per litre is proposed. After this initial increase, the difference between
the excise for products with a sulphur content below 50 ppm and the excise
for products above this threshold will amount to one cent per litre (Item
7 to Item 14).
The new subsection (b) creates a presumption that the sulphur content
of diesel exceeds the threshold of 50 ppm. Where the lower EDR for UDSL
is claimed, the onus of proof will lie with the producer of the diesel
product to satisfy the collector that the product’s sulphur level is below
the threshold of 50 ppm.(19)
Item 4 of the Bill sets out the formula for calculating the amount
of excise duty payable ion diesel or blended diesel products. In particular
the formula provides for the fact that:
-
the product may contain diesel as well as ethanol or other substances,
-
·different EDRs will apply, depending upon the sulphur content of
the diesel, by implementing a diesel rate into the equation. The definition
of diesel rate distinguishes between ULSD and HSD, and
-
some of the products and substances contained in the product already
have been subject to excise and customs duties, allowing the setting
off of those as previously paid duties.
The term ‘other substances’ as used in this formula is defined
to mean ‘substances in the excisable blended petroleum product that are
not either diesel or ethanol’. This definition appears to be broad enough
to capture any substance added to the fuel, even non-excisable substances
not being considered an integral part of the fuel.
Item 5 and Item 6 set out the formula for
calculating the amount of excise duty payable on emulsified blends of
diesel, water and any other additives.
Part 2 of the Bill puts into place the legislative arrangements to increase
the excise duty on HSD fuels. This increase took effect on 1 January 2004.
Item 15 to Item 22 of the Bill increase the
EDR applicable to those products which exceed a sulphur content of 50
parts per million by a further cent to $0.40143 per litre. After this
second increase, the difference between the excise for ULSD and products
above the threshold of 50 ppm will reach two cents per litre.
Part 3 of the Bill increase the EDRs for aviation fuels. This part took
effect on 1 July 2003.
Item 23 proposes to increase the current excise rate for kerosene
used as aircraft fuel by $0.00306 per litre from $0.02845 per litre to
$0.03151 per litre.
Item 24 and Item 25 increase the current excise rate for
gasoline, other petroleum or shale spirit, in packages below or above
210 litres, by $0.00306 per litre from $0.02808 per litre to $0.03114
per litre.
Part 4 of the Bill deals with the introduction of an EDR for biodiesel
and biodiesel products. The new EDR took effect on 18 September 2003.
Item 26 inserts a definition for the term “biodiesel” into the
Act. Note that the definition is limited to those biodiesel products that
are used as fuel in an internal combustion engine.
Item 28 inserts subsection (2C) into s.6G of the Act, providing
a formula to calculate the duty payable on products containing biodiesel
products, ethanol and any other substances. The duty is calculated by
applying the relevant EDR to the volume of the individual product and
by deducting previously paid duties.
Again, the term ‘other substances’ is defined to mean ‘substances in
the excisable blended petroleum product that are not either biodiesel
or ethanol’. This definition appears to be broad enough to capture any
substance added to the fuel, even non-excisable substances that are not
being considered an integral part of the fuel, such as additives.
Item 30 sets the excise rate for biodiesel to be $0.38143 per
litre.
The amendments proposed in relation to the diesel fuel excise are designed
to encourage production and use of environmentally friendly diesel fuels.
As indicated above, the Government follows an international trend with
this proposal.
Whether the proposal can unfold its full potential in the short term
has to be seen. It seems that engine technology, especially catalytic
converters, are necessary to actually achieve the reduction in harmful
emissions that is the primary goal of the Government’s policy.
The amendments in relation to aviation fuels are proposed to raise funds
for CASA. However, the Government already foreshadowed in the Explanatory
Memorandum that:
The revenue from aviation fuel duty is estimated to be 11%
lower than forecast as a consequence of cessation of Ansett operations,
world wide reduction in air travel demand and introduction of larger,
more fuel efficient aircraft.
The amendments making biodiesel excisable are the result of the Government’s
plan to create a homogenous excise system as suggested by the Fuel Taxation
Inquiry. The introduction of the EDR corresponds with the introduction
of the Energy Grants (Cleaner Fuels) Scheme and should result in a ‘zero-excise
rate’ for those qualifying for a grant.
-
Note that Part 5 of Schedule 1 will not commence as the Excise
Tariff Amendment Act (No.1) 2004 commenced on 21 April 2004.
-
The Hon. J W Howard, Measures for a Better Environment, Media
Release, 31 May 1999, available on: http://www.pm.gov.au/news/media_releases/1999/changes3105.htm,
accessed 12 May 2004.
-
Explanatory Memorandum, at paragraph 1.3, available at: http://parlinfoweb.parl.net/parlinfo/Repository/Legis/ems/Linked/08040400.pdf,
accessed 13 May 2004.
-
N H Sweed, R Demmin, H Ryu, ‘Low Sulphur Technology’ Research
Paper on Hydrocarbon Engineering, July 2002, available on: http://www.prod.exxonmobil.com/refiningtechnologies/pdf/JulyHESCF.pdf,
accessed on 13 May 2004.
-
A Main, ‘Why Diesel Need not to be a Dirty Word for Greenies’, The
Australian Financial Review, 6 August 2003.
-
Explanatory Memorandum, at paragraph 1.3, available at: http://parlinfoweb.parl.net/parlinfo/Repository/Legis/ems/Linked/08040400.pdf,
accessed 13 May 2004.
-
N H Sweed, R Demmin, H Ryu, “Low Sulphur Technology” Research
Paper on Hydrocarbon Engineering, July 2002, available on: http://www.prod.exxonmobil.com/refiningtechnologies/pdf/JulyHESCF.pdf,
accessed on 13 May 2004.
-
J Dowling, ‘Push to Cut Excise on Cleaner Fuel so it Sells’, The
Sydney Morning Herald, 23 July 2002.
-
The Hon. J W Howard, Measures for a Better Environment, Media
Release, 31 May 1999, available on: http://www.pm.gov.au/news/media_releases/1999/changes3105.htm,
accessed 12 May 2004.
-
T O’Loughlin, ‘Farmers, Truckies Fight Diesel Price Rise’, Financial
Review, 19 December 2002; J Gordon, ‘Farmers get Diesel Tax Reprieve’,
The Age, 25 December 2002; Explanatory Memorandum, at
paragraph 1.4, available on: http://parlinfoweb.parl.net/parlinfo/Repository/Legis/ems/Linked/08040400.pdf,
accessed 13 May 2004.
-
The Hon. P Costello, Fuel Tax Reform for the Future, Press
Release No. 31, 13 May 2003, available on: http://www.treasurer.gov.au/tsr/content/pressreleases/2003/031.asp,
accessed 13 May 2004.
-
D Trebeck, J Landels, K Hughs, ‘Fuel Taxation Inquiry Report’, Recommendation
1, at p. 29, March 2002, available on: http://fueltaxinquiry.treasury.gov.au/content/report/default.asp,
accessed 11 May 2004.
-
Biodiesel Association of Australia, ‘Biodiesel Fact Sheet, Biodiesel
Fact 1’, available on: http://www.biodiesel.org.au/biodieselfacts.htm#IS;
accessed 11 May 2004.
-
‘End of Biodiesel in Australia’, ReNew, Vol. 86, 2004, at
p. 13.
-
A Martyn, ‘Energy Grants (Cleaner Fuels) Scheme Bill 2003’, Bills
Digest, No 33, Parliamentary Library Canberra, 2003-2004.
-
The Hon. P Costello, Fuel Tax Reform for the Future, Press
Release No. 31, 13 May 2003, available on http://www.treasurer.gov.au/tsr/content/pressreleases/2003/031.asp,
accessed 13 May 2004.
-
M Monti, “Staatliche Beihilfe N685/02 – Deutschland,
Mineralölsteuerbefreiung für Biokraftstoffe” (Subsidy N685 – Germany,
Petroleum Tax Exemption for Bio Fuels), European Commission, Brussels,
18 February 2004, at paragraph 10: http://europa.eu.int/comm/secretariat_general/sgb/state_aids/comp-2002/n685-02.pdf,
accessed 12 May 2004.
-
ibid., at paragraph 18 and 32.
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The Collector is either the Tax Commissioner (or their delegate)
or someone else who has been authorised to perform a certain function
under the Excise Act 1901.
Thomas John
2 June 2004
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 2004
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