Phillip Hawkins
The ‘Black Economy Package – combatting illicit tobacco’
adopts a number of recommendations from the Black Economy Taskforce’s (‘the Taskforce’)
final
report, which was provided to the Government in October 2017 and publicly
released with the Budget.[1]
The size of the illicit tobacco market is, by its nature,
difficult to measure. The Taskforce’s report records several estimates; from
the Department of Immigration and Border Protection ($0.5 billion to $2.3 billion); from KPMG ($2.5 billion); and from others ranging up to $6
billion.[2]
However, the tobacco-related measures that have a material
impact on the Budget do not concern illicit tobacco per se, but
concern changes in the timing of the collection of excise on legally imported
tobacco.
Imposing duty on imported tobacco
earlier in the supply chain
Currently importers can defer the timing of customs duty
applied to imported goods (such as alcohol and tobacco) by transferring them to
a warehouse licensed under section 79 of the Customs Act 1901 (Cth). The
customs duty becomes payable once the goods are transferred out of the
warehouse for domestic sale or export. Goods can be stored in warehouses
indefinitely.[3]
From 1 July 2019, customs
duty will apply to tobacco products as soon they are imported, removing the
ability of tobacco importers to defer taxation using warehousing arrangements.[4]
The Taskforce recommended this approach in order to minimise the opportunity
for duty to be avoided by distributing tobacco from warehouses illicitly, prior
to the imposition of tax.[5]
Taxing tobacco warehoused on 1 June
2019
In addition, customs duty will be applied to tobacco
products which have been imported but which are being stored in a licensed
warehouse as at 1 July 2019. The importer will have one year to
pay the customs duty amount. This would apply to all imported tobacco products
stored in warehouses, including legally imported products. This aspect of the
measure has the greatest fiscal impact, bringing forward to 2019-20 revenue
that would otherwise have been paid in later years.
Other related measures
The package includes
several other measures:
- from 1 July 2018, creating a cross-agency Illicit Tobacco Task
Force (ITTF) to allow for enhanced cooperation in tackling illicit tobacco
trade and prosecuting organised crime groups. The new Task Force, which builds
on the approach of the Australian Border Force Tobacco Strike Team, will have
additional powers and capabilities to enhance intelligence gathering and
proactively target, disrupt and prosecute serious and organised crime groups at
the centre of the illicit tobacco trade.[6]
- The
existing Black Economy Taskforce recommended that the ITTF comprise the
Australian Tax Office, Australian Federal Police, Department of Home Affairs,
the Australian Criminal Intelligence Commission and the Department of Health.[7]
- providing additional resources to the ATO to detect and destroy
domestically grown illicit tobacco crops
- making manufactured tobacco products a restricted
import from 1 July 2019, requiring a permit from the Department of Home
Affairs to import them and
- upgrading the ATO’s payment systems infrastructure for customs
duties.
These policies will complement the previously announced
measures to combat illicit tobacco.[8] Some of these are
proposed to be implemented in two Bills currently before the Parliament: these
measures create a new offence regime for illicit tobacco that has been
domestically manufactured or produced, or for which the origin of production or
manufacturing is unknown or uncertain. The Treasury
Laws Amendment (Illicit Tobacco Offences) Bill 2018 and the Customs
Amendment (Illicit Tobacco Offences) Bill 2018 propose to set penalties at
a high level to deter illegal activity relating to the production of illicit
tobacco and for defrauding the Commonwealth of revenue that would otherwise be
raised through customs duty.
Financial impact
The package of measures is expected to have a net gain to
the Commonwealth of around $3.6 billion over the forward estimates period. This
financial impact consists of an increase in revenue of $3.73 billion, less an
increase in departmental expenditure of $0.14 billion and an increase in
capital expenditure of $0.02 billion over the forward estimates period. The
revenue component consists of two elements:
- Applying customs duties to tobacco products already stored within
warehouses. This has the effect of bringing forward tobacco tax revenue that
would have otherwise been paid in future years. This component is expected to
have a one-off financial impact in 2019–20.
- Additional revenue from reducing tax avoidance through the
illicit trade in tobacco. This component is expected to have an ongoing
financial impact.
Table 1: Financial impact of the ‘Black
Economy Package – combatting illicit tobacco’
|
($m)
|
2017–18
|
2018–19
|
2019–20
|
2020–21
|
2021–22
|
Total
|
|
Revenue(a)
|
-
|
11.0
|
3,280.5
|
192.0
|
247.0
|
3,730.5
|
|
Expense(b)
|
-
|
20.3
|
29.5
|
39.8
|
46.4
|
136.0
|
|
Capital(b)
|
-
|
5.6
|
0.2
|
4.2
|
7.2
|
17.2
|
|
Total fiscal impact(c)
|
-
|
-14.9
|
3,250.8
|
148.0
|
193.4
|
3,577.3
|
Source: Australian Government, Budget
measures: budget paper no. 2: 2018–19, p. 12.
(a) A positive number indicates an
increase in revenue.
(b) A positive number indicates an increase
in expenditure or an increase in capital expenditure.
(c) A negative number indicates a
decrease in the fiscal balance; a positive number indicates an increase in the
fiscal balance.
[1].
Australian Government, Budget
measures: budget paper no. 2: 2018–19, p. 12; Australian
Government, Black
Economy Taskforce: Final report, Treasury, October 2017.
[2]
Ibid., p. 30
[3].
Department of Home Affairs (Home Affairs),
‘Warehouses and depots’, Home
Affairs website.
[4].
For explanatory material, see Australian Taxation Office (ATO), ‘Excise
equivalent goods (imports)’, ATO website.
[5].
Australian Government, Black Economy Taskforce: Final report ,
op.cit., p. 311.
[6] Australian
Government, Budget
measures: budget paper no. 2: 2018–19, p. 12
[7].
Ibid., p. 309.
[8] For
example, see Australian Government, Budget measures: budget paper no. 2:
2016-17, p. 16; ‘Tobacco Excise — measures to improve health outcomes and
combat illicit tobacco’
All online articles accessed May 2018.
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