Bills Digest No. 35,
2018–19
PDF version [584KB]
Phillip Hawkins
Economics Section
Cat Barker
Foreign Affairs, Defence and Security Section
18 October 2018
Contents
Purpose of
the Bill
Structure of
the Bill
Background
Committee
consideration
Policy
position of non-government parties/independents
Position of
major interest groups
Financial
implications
Statement of
Compatibility with Human Rights
Key issues
and provisions
Date introduced: 19
September 2018
House: House of
Representatives
Portfolio: Home
Affairs
Commencement: Sections
1 to 3 commence on Royal Assent; Schedule 1 commences on the later of 1 July 2019
or the day after Royal Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent, they
become Acts, which can be found at the Federal
Register of Legislation website.
All hyperlinks in this Bills Digest are correct as at
October 2018.
Purpose of
the Bill
The purpose of the Customs
Amendment (Collecting Tobacco Duties at the Border) Bill 2018 (the Bill)
is to change the point of taxation for imported tobacco to combat illicit
tobacco entering the black market through leakage from customs warehouses.
Structure
of the Bill
This Bill has one Schedule, which is divided into two
parts. Part 1 amends the Customs Act 1901
to change the point at which excise-equivalent customs duty applies to imported
tobacco products. Part 2 contains application and transitional
provisions.
Background
The proposal
In the 2018–19 Budget the Government announced a
package of measures that seek to reduce illicit tobacco in Australia through smuggling,
leakage from licensed warehouses and domestic production.[1]
The Bill seeks to implement one of the measures—changing the point of taxation
for tobacco imports.
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. The customs
duty becomes payable once the goods are transferred out of the warehouse and
entered for home consumption. Entering goods for ‘home consumption’ means releasing
imported goods from customs control. This requires an import declaration to be made
in respect of those goods.[2]
This is the point at which any customs duties become payable.
The Bill seeks to change the Customs Act to provide
that tobacco products will need to be entered for home consumption and customs
duties paid as soon as they are imported, removing the ability of tobacco
importers to defer taxation using warehousing arrangements.
This approach was recommended by the Black
Economy Taskforce in its final report. It argued that this measure would minimise
the opportunity for duty to be avoided by distributing tobacco from warehouses
illicitly, prior to the imposition of tax.[3]
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 be able
to enter into an arrangement that allows one year to pay the customs duty
amount.[4] This
will apply to all imported tobacco products stored in warehouses, including
legally imported products.
Customs duty on tobacco products includes
‘excise-equivalent’ customs duty, which is applied on imported tobacco at the
same rate as the excise that would apply on tobacco manufactured in Australia.
To ensure consistent treatment between imported and domestically manufactured tobacco,
the Excise Tariff Amendment (Collecting Tobacco Duties at Manufacture) Bill
2018 and Schedule 3 of the Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Bill
2018 propose to remove the ability of domestic
manufacturers to defer the payment of excise, by changing the taxing point to
the time the products are manufactured rather than the point the manufacturer
enters them for home consumption.[5]
Australia does not currently manufacture tobacco, but these changes would apply
to any tobacco manufactured in the future.[6]
Illicit tobacco in Australia
Illicit tobacco includes both unbranded tobacco and
branded products on which excise, customs duty and GST have not been paid.[7]
The size of Australia’s illicit tobacco market is not known, and estimates of
the market vary considerably.[8]
The Department of Home Affairs and the Australian Taxation Office have
reportedly been working to develop a more accurate estimate of Australia’s
illicit tobacco market.[9]
National Drug Strategy Household
Survey
Some information on the extent to which illicit tobacco is
consumed in Australia is available from the National Drug Strategy Household
Survey, undertaken by the Australian Institute of Health and Welfare. The
latest data available is from the 2016 survey, which found that:
- 16.5 per cent
of smokers had smoked unbranded tobacco (either loose or in cigarette form) in
their lifetime, and 3.8 per cent currently used it and
- 13.0 per cent
of smokers had seen tobacco products without plain packaging in the last
three months, and 5.5 per cent had purchased such a product in
that period.[10]
The survey includes different questions asked about
unbranded tobacco and tobacco products without plain packaging, meaning these
results cannot be combined to provide an estimate of the overall proportion of
the total tobacco market that is made up of illicit tobacco.
Industry-sponsored estimates
For several years, the tobacco industry has commissioned annual
reports on illicit tobacco in Australia. The latest of these reports, produced
by KPMG for the 2017 calendar year, estimated that illicit tobacco comprised
15.0 per cent of the total consumption of tobacco in Australia that
year.[11]
Government departments have assessed the industry-funded estimates as
unreliable ‘due to a number of methodological shortcomings’, including
‘unrepresentative sample sizes, restrictive survey measures and drawing upon
unreliable secondary sources to validate the results’.[12]
Other estimates
Other recent estimates also differ substantially. A 2015
Australian study based on national cross-sectional surveys conducted between
April 2012 and March 2014 estimated the current prevalence of use of illicit
tobacco of any kind to be around three per cent.[13]
In a submission to a parliamentary committee, Rohan Pike
Consulting estimated that in revenue terms, illicit tobacco would represent
28.2 per cent of the total tobacco market in Australia as at
September 2016.[14]
Proportion of illicit tobacco
originating from warehouse leakage
In its final report, the Black Economy Taskforce stated
that during consultations, it was told of ‘several bonded warehouses which have
been used to distribute illicit tobacco’.[15]
According to Rohan Pike Consulting, the Tobacco Strike Team found:
... many millions of cigarettes are being imported into
ATO-regulated warehouses on a “duty delayed” basis and are then diverted into
home consumption without the duty being paid. These warehouses are being
exploited by organised crime groups with relative ease ...
... cigarettes are not being stolen from these warehouses, they
are being smuggled out of them via a variety of methods involving poor, false
or non-existent record keeping ...[16]
While the total size of the illicit tobacco market in
Australia remains unknown, in his second reading speech for the Bill, the Minister
for Immigration, Citizenship and Multicultural Affairs stated that leakage from
licensed warehouses to the black market ‘contributes to around a quarter of
illicit tobacco in Australia’.[17]
Other legislation
The measure in this Bill complements a number of other
legislative changes that are intended to combat illicit tobacco. These include:
Committee
consideration
Senate Standing Committee for the
Scrutiny of Bills
At the time of writing the Senate Standing Committee for
the Scrutiny of Bills had not considered this Bill.
Policy
position of non-government parties/independents
The Shadow Minister for Immigration and Border Protection,
Shayne Neumann, expressed support for these changes in his second reading
speech on the Customs Amendment (Illicit Tobacco Offences) Bill 2018. However,
he criticised the Government for relying on a one-off increase in customs duty,
from the taxation of tobacco products in warehouses at 1 July 2019, to return
the Budget to surplus in 2019–20 (see discussion below).[19]
Position of
major interest groups
The Department of Home Affairs consulted on a draft of the
Bill and explanatory materials in August 2018.[20]
At the time of writing no submissions have been published.
Financial
implications
The proposed changes
in the Bill are expected to lead to an increase in revenue of $3.73 billion
This 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 and
- additional revenue from reducing tax avoidance through the illicit
trade in tobacco. This component is expected to have an ongoing financial
impact.[21]
Statement
of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[22]
Parliamentary Joint Committee on
Human Rights
In its report dated 17 October 2018, the Parliamentary
Joint Committee on Human Rights stated that the Bill does not raise human rights
concerns.[23]
Key issues
and provisions
Item 1 of the Bill adds a new definition of tobacco
products to existing subsection 4(1) of the Customs Act
to allow for consistent referencing of such products in the Act. Tobacco
products are defined with reference to Schedule 3 of the Customs Tariff Act
1995 and include cigarettes, cigars, cheroots, cigarillos, loose
tobacco (manufactured and unmanufactured), tobacco extracts and essences. The
definition does not include tobacco substitutes which are non-dutiable.[24]
Part 1—Amendments
Warehousing of tobacco products
Customs duties (including excise-equivalent customs
duties) are applied when the owner of those goods enters them into Australia
for home consumption.[25]
The owner of the goods may store them in a licensed customs warehouse
indefinitely without paying customs duties until they are entered for home
consumption.[26]
Warehoused goods are held in customs control until they are entered for home
consumption, or the goods are exported.[27]
Items 2 and 3 amend existing subsection 68(2)
of the Customs Act to remove the ability of owners of tobacco products
to warehouse those goods without entering them for home consumption and paying
customs duties. Item 4 amends subsection 68(3) to provide that tobacco
products must be entered for home consumption when a ship or aircraft carrying
the goods first arrives at the port or airport where the goods are to be
discharged. These changes have the effect of removing the ability of importers
of tobacco products to defer the payment of customs duties by warehousing the
goods.
Recurring payment of customs duties
Section 69 of the Customs Act allows for permission
to be granted to importers to pay customs duties on certain goods, including
tobacco products, on a recurring seven day basis (or for a small business, a
recurring monthly basis). During the seven day period (or monthly period) the
goods can be entered into home consumption before the duty is paid at the end
of the period. This effectively allows deferral of customs duties.
Item 6 inserts proposed subsection 69(1A) to
provide that such arrangements can no longer be approved for tobacco products. This
is consistent with applying customs duties to these products as soon as they
are imported.
Warehouse Declarations
Subdivision D of Division 4 of Part IV of the Customs
Act requires importers to declare certain information to the Department of
Home Affairs in respect of goods that are intended to be entered for
warehousing and makes importers liable to pay certain warehousing charges (among
other requirements).
Item 7 inserts proposed section 71DG which
provides that this Subdivision does not apply to tobacco products as they
cannot be warehoused.
Warehouse licensing
Section 79 of the Customs Act provides for
the granting of warehouse licences. The requirements for applying for a
warehouse licence are specified at section 80 and the conditions placed
on warehouse licences are specified at section 82.
Item 9 inserts proposed subsection 80(2) to
provide that an application for a warehouse licence cannot be made for the use
of storing tobacco products.
Item 10 inserts proposed subsection 82(2) to
make it a condition of a warehouse licence that the warehouse not be used to
store tobacco products unless customs duties have been paid.
Part 2—Application and transitional
provisions
Application provisions
Schedule 1 of the Bill is intended to commence on 1 July
2019 (unless the Bill has not passed Parliament by this date, in which case it
will commence on the day after Royal Assent).[28]
Item 12 includes the application provisions for the
amendments in Part 1 of Schedule 1.
Subitem 12(1) provides that the proposed amendments
made by items 2, 3, 4, 5 and 7, which
prevent customs duty being deferred on tobacco products through warehousing
arrangements, apply in relation to:
- tobacco
imported into Australia on or after the commencement of these items or
- tobacco
products that have been imported into Australia before commencement of the
items but which have not been entered for home consumption or into a warehouse
before the commencement of these items.
Subitem 12(2) provides that the proposed changes at
items 6, 8 and 9, which prevent applications for new
warehouses arrangements for tobacco products, apply in relation to
applications:
- made
on or after the commencement date or
- which
are pending at the time the items commence.
Subitem 12(3) provides that the proposed amendment
at item 10, which amends the conditions for warehouse licences to
preclude tobacco products being stored in a warehouse with no customs duty paid,
applies seven days after the commencement of the item. This allows tobacco
products to be stored in the warehouse without customs duty being paid for seven
days after the Act’s commencement without the licence holder breaching their
licence obligations.
For a warehouse that is a duty free shop, or a warehouse
that only warehouses ship’s stores and/or aircraft’s stores, then
the tobacco products can be stored for six months from commencement
before breaching licence obligations.[29]
Transitional provisions
The transitional provision at item 13 deals with
tobacco that is warehoused at the time the Bill commences. The provision allows
seven days for the importer of the tobacco products to:
- enter
the goods for home consumption and pay all outstanding customs duties or
- enter
into an arrangement with the Comptroller-General of Customs to pay any
outstanding customs duties over the following twelve months.[30]
This transitional provision results in a one-off bring
forward of customs duties to 2019–20, that would have otherwise been paid as
the goods were released from the warehouse to be entered for home consumption. The
transitional provisions at item 13 do not apply to products that are
warehoused in duty free stores or in ship’s stores or aircraft’s stores.
The transitional provisions at item 14 provide that
any permission in force under section 69 of the Customs Act for a
recurring (weekly or monthly) payment of customs duties on tobacco products
entered for home consumption, ceases to be in effect after the commencement of
the Bill.
The transitional provision at item 15 provides that
any permission to move tobacco products into a warehouse that was granted prior
to the commencement of the Bill ceases to have effect following commencement.
The transitional provision at item 16 provides that
a warehousing licence in force immediately before commencement, for the purpose
of solely storing tobacco products, cannot be renewed following commencement of
the Bill.
[1]. Australian Government, Budget measures: budget paper no. 2: 2018–19, p. 12.
[2]. Customs
Act 1901, section 68(3A).
[3]. Black
Economy Taskforce, Final
report, The Treasury, October 2017, p. 311.
[4]. Explanatory
Memorandum, Customs Amendment (Collecting Tobacco Duties at the Border)
Bill 2018, p. 2.
[5]. Explanatory
Memorandum, Treasury
Laws Amendment (Black Economy Taskforce Measures No. 2) Bill 2018 [and] Excise
Tariff Amendment (Collecting Tobacco Duties at Manufacture) Bill 2018, p. 21.
[6]. Ibid.,
pp. 20–25.
[7]. Australian
Institute of Health and Welfare (AIHW), National
Drug Strategy Household Survey 2016: detailed findings, AIHW, 2017,
p. 29.
[8]. Department
of Immigration and Border Protection, Submission
to Parliamentary Joint Committee on Law Enforcement (PJCLE), Inquiry into
illicit tobacco, [Submission no. 77], n.d., p. 3; Department of
Health, Submission
to PJCLE, Inquiry into illicit tobacco, [Submission no. 157], February 2016,
p. 3.
[9]. Department
of Immigration and Border Protection, Submission
to PJCLE, op. cit., p. 3; Department of Health, Submission
to Australian Competition and Consumer Commission (ACCC), British American
Tobacco Australia Limited & Ors Application for Authorisation A91550,
November 2016, p. 4.
[10]. AIHW,
National
Drug Strategy Household Survey 2016: detailed findings, op. cit.,
pp. 29–30; AIHW, 2016
National Drug Strategy Household Survey (sample only), AIHW, 2016,
questions D31 and D32.
[11]. KPMG,
Illicit
tobacco in Australia: 2017 full year report, KPMG, 20 April 2018,
p. 48.
[12]. Department
of Immigration and Border Protection, Submission
to PJCLE, op. cit., p. 3. See also Department of Health and Ageing, Submission
to Senate Standing Committee on Legal and Constitutional Affairs, Inquiry
into the Customs Amendment (Smuggled Tobacco) Bill 2012, [Submission
no. 7], July 2012, p. 2; Department of Health, Submission
to ACCC, op. cit., pp. 3–4. The KPMG reports (for the years 2012
onwards) rely on the same methodology employed by PricewaterhouseCoopers and
Deloitte in earlier years.
[13]. M Scollo,
M Zacher, K Coomber and M Wakefield, ‘Use
of illicit tobacco following introduction of standardised packaging of tobacco
products in Australia: results from a national cross-sectional survey’, Tobacco
Control, 24, 19 March 2015,
pp. 1176–81.
[14]. Rohan
Pike Consulting, Submission
to PJCLE, Inquiry into illicit tobacco, [Submission no. 166], 12 January 2017,
pp. 21–22. Mr Pike previously worked for the Australian Federal
Police and the Australian Border Protection and Customs Service/Australian
Border Force (in the case of the latter, in the Tobacco Strike Team).
[15]. Black
Economy Taskforce, op. cit., p. 311.
[16]. Rohan
Pike Consulting, Submission,
op. cit., p. 13.
[17]. D
Coleman, ‘Second
reading speech: Customs Amendment (Collecting Tobacco Duties at the Border)
Bill 2018’, House of Representatives, Debates, (proof),
19 September 2018, p. 11.
[18]. M
Biddington, Customs
Amendment (Illicit Tobacco Offences) Bill 2018, Bills digest, 9,
2018–19, Parliamentary Library, Canberra, 2018, p. 2.
[19]. S
Neumann, ‘Second
reading speech: Customs Amendment (Illicit Tobacco Offences) Bill 2018’,
House of Representatives, Debates, (proof), 14 August 2018, p. 1.
[20]. Department
of Home Affairs, Exposure
Draft of the Customs Amendment (Collecting Tobacco Duties at the Border) Bill
2018 for public consultation, August 2018.
[21]. Explanatory
Memorandum, Customs Amendment (Collecting Tobacco Duties at the Border) Bill
2018, op. cit., p. 3.
[22]. The
Statement of Compatibility with Human Rights can be found at page 11 of the Explanatory
Memorandum to the Bill.
[23]. Parliamentary
Joint Committee on Human Rights, Human
rights scrutiny report, 11, 16 October 2018, Canberra, p. 72.
[24]. Explanatory
Memorandum, Customs Amendment (Collecting Tobacco Duties at the Border) Bill
2018, op. cit., p. 5.
[25]. Customs Tariff Act
1995, section 15(b)(i).
[26]. Department
of Home Affairs, ‘Warehouses
and depots’, Department of Home Affairs website.
[27]. Ibid.
[28]. Customs
Amendment (Collecting Tobacco Duties at the Border) Bill 2018, subclause
2(1).
[29]. Subitems
12(3) and 12(4). Aircraft’s stores and ship’s
stores are defined under section 130C of the Customs Act as ‘stores
for the use of the passengers or crew of an aircraft [or ship], or for the
service of an aircraft [or ship]’.
[30]. Explanatory
Memorandum, Customs Amendment (Collecting Tobacco Duties at the Border) Bill
2018, op. cit., p. 8.
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