2002

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

Excise Laws amendment bill (No. 1) 2002 
Excise tariff amendment bill (No. 2) 2002

EXPLANATORY MEMORANDUM

(Circulated by authority of the
Treasurer, the Hon Peter Costello, MP)

Table of contents
General outline and financial impact	1
Chapter 1	Excise on alcoholic beverages	3

General outline and financial impact
Excise on alcoholic beverages
These bills amend the excise legislation to deal with the case where manufacturers take advantage of the tolerance allowed in food labelling by lowering the alcohol content of a product while labelling the product at a higher alcohol strength. The amendments reduce the competitive advantage gained by manufacturers adopting this practice.
The Excise Laws Amendment Bill (No. 1) 2002 amends the 
Excise Act 1901 (Excise Act) to enable excise to be charged on the higher of the labelled alcohol content or the actual alcohol content of alcoholic beverages, and to allow the CEO (Commissioner of Taxation) to determine rules for working out the percentage by volume of alcohol in the beverage. This bill inserts a definition of alcoholic beverages and provides for certain unlabelled alcoholic beverages to be treated as labelled. 
Consequential amendments will be made to the Distillation Act 1901 and the Spirits Act 1906 and, in Excise Tariff Amendment Bill (No. 2) 2002, to the Excise Tariff Act 1921. The amendments add references in these Acts to the new provisions in the Excise Act and repeal a redundant provision in the Distillation Act 1901.
Date of effect:  The proposed alterations contained in these bills will take effect from 7.30pm on 14 May 2002, by legal time in the Australian Capital Territory (Budget night).
Proposal announced:  The proposal was announced by the Minister for Revenue and Assistant Treasurer on 14 May 2002 via Media Release.
Financial impact:  The expected net revenue gain from the imposition of excise on the higher of labelled or actual alcoholic strength is $4.3 million in 2002-2003, $4.6 million in 2003-2004, $4.9 million in 2004-2005, and $5.1 million in 2005-2006.
Compliance cost impact:  Where products are labelled at a higher than actual alcoholic strength the manufacturer will be required to label the product to reflect the actual alcoholic strength or pay excise duty on the labelled alcoholic strength. Additional compliance cost will occur only where a manufacturer chooses to relabel a product to reflect the actual alcohol content of the product.

Chapter 1	
Excise on alcoholic beverages
Outline of chapter
1.1	This chapter explains amendments to the Excise Act 1901 (Excise Act) that will enable excise duty to be charged on the labelled alcohol content of a beverage where this exceeds the actual alcohol content, and allow the CEO (Commissioner of Taxation) to determine, by instrument in writing, rules for working out the percentage by volume of alcohol in the beverage. The provisions will enable the CEO to make rules concerning sampling methods and to take into account minor unavoidable variations in the alcoholic strength as a result of the manufacturing process.
1.2	A definition of alcoholic beverages will be inserted for the purposes of these and related provisions and a new provision added to enable unlabelled alcoholic beverages, which purport to be the same as labelled products of a like kind, to be treated as labelled for the working out of alcohol content to determine excise.
1.3	Items 4 to 6 of Schedule 1 amend the Excise Act by changing the heading description of Part VIIA, inserting a definition of alcoholic beverages in section 77A and inserting new sections 77FA and 77FB. New subsection 77FA(1) enables excise duty to be charged on the labelled strength of an alcoholic beverage where it exceeds the actual alcoholic strength. Subsection 77FA(2) enables unlabelled products, for example, kegs for draught beverages, which purport to be the same product as labelled products of a like kind made by that manufacturer, to be treated as labelled. New section 77FB allows the CEO to determine rules for working out the strength of alcoholic beverages. [Schedule 1, items 4 to 6] 
Context of amendments
1.4	Under current excise legislation, excise duty is imposed on the actual alcohol strength, not the labelled strength, of excisable alcoholic beverages. 
1.5	The Australian New Zealand Food Standards Code allows for a variation between labelled strength and actual strength for alcoholic beverages consumed in Australia. A consequence is the potential loss to government revenue where manufacturers reduce the alcohol content of a product and pay excise on that content while labelling their product at the higher alcohol strength allowed by the food standards legislation.
1.6	Manufacturers who pay excise duty on the basis of actual strength, where actual strength is lower than labelled strength, can gain a competitive advantage. This practice could potentially spread through the alcoholic beverages industry.
1.7	As a result, the Government has decided to charge excise duty on the higher of the labelled alcohol content or the actual alcohol content of alcoholic beverages. Alterations to the Excise Act will give effect to this decision.
1.8	There is currently no basis in the Excise Act for determining the alcohol content of a beverage. The Schedule to the  Excise Tariff Act 1921, the Distillation Act 1901 and the Spirits Act 1906 include a reference to volume of alcohol being measured at 20 degrees Celsius and to a specific gravity of alcohol in relation to water at that temperature but these references do not constitute a method of determining the volume of alcohol. A new provision will be added so that the CEO may determine, by instrument in writing, rules for the determination of the alcohol content. 
Summary of new law
1.9	The Excise Act will be amended by:
•	inserting a definition of alcoholic beverages under     section 77A;
•	inserting a provision (subsection 77FA(1)) whereby excise duty will be charged on the labelled strength of alcoholic beverages where this exceeds the actual alcoholic content; 
•	inserting a provision (subsection 77FA(2)) enabling unlabelled alcoholic beverages, for example kegs for draught beverages, which purport to be the same as labelled products of a like kind made by that manufacturer, to be treated as labelled; and
•	inserting provisions (subsections 77FB(1) to (8)) to allow the CEO to make rules for working out the alcoholic strength of beverages. The CEO may make different determinations for different classes of alcoholic beverages. The rules may also include provisions concerning sampling methods and may permit, for the purposes of working out the excise duty, minor variations between the nominated or labelled strength and the actual strength where these variations are an unavoidable result of the manufacturing process.
Comparison of key features of new law and current law
New law	Current law	
A definition of alcoholic beverages specifying the Excise Tariff items to which the provisions in the amended Part VIIA of the Excise Act apply will be included.	No equivalent.	
Excise duty to be charged on the labelled alcohol content of an excisable alcoholic beverage where the labelled strength exceeds the actual alcoholic content.	Excise duty is charged on the actual alcoholic content of excisable alcoholic beverages.	
An unlabelled alcoholic beverage will be treated as having the same alcoholic content as a labelled alcoholic beverage of that kind entered for home consumption by the manufacturer.	No equivalent.	
The CEO may determine, by instrument in writing, rules for working out the content of alcohol in the beverage.	No equivalent. 	
The rules may specify sampling methods and permit unavoidable minor variations between the nominated or labelled strength and the actual strength as a result of the manufacturing process.	No equivalent.
	
Detailed explanation of new law
1.10	The heading for Part VIIA of the Excise Act will be amended to refer to the extended application of the Part to alcoholic beverages in addition to beer. [Schedule 1, item 4]
1.11	A definition of alcoholic beverages as goods coming within particular Excise Tariff item classifications in the Schedule to the Excise Tariff Act 1921 will be inserted in section 77A of the Excise Act.  It covers all the beverages usually treated as alcoholic for excise purposes. [Schedule 1, item 5] 
1.12	New section 77FA in subsection (1) provides that excise duty is payable on the labelled strength of the beverage, where the labelled strength exceeds the actual percentage by volume of the alcoholic content of the beverage. [Schedule 1, item 6]
1.13	Subsection 77FA(2) provides that an alcoholic beverage entered for home consumption in an unlabelled form will be treated as having the same percentage by volume of alcoholic content as an alcoholic beverage of that kind entered for home consumption by the manufacturer in a labelled form. [Schedule 1, item 6] 
1.14	New section 77FB provides in subsection (1) that the CEO may determine, by instrument in writing, rules for working out the percentage by volume of alcohol in the alcoholic beverage. [Schedule 1, item 6]
1.15	Subsection 77FB(2) provides that the rules may specify sampling methods and may permit, for the purposes of working out the excise duty, minor variations between the nominated or labelled strength and the actual strength where these variations are an unavoidable result of the manufacturing process. [Schedule 1, item 6]
1.16	Subsection 77FB(3) allows the CEO to make different determinations for different classes of alcoholic beverages. This provision will enable the different manufacturing processes applying to different types of alcoholic beverage to be taken into account. [Schedule 1, item 6]
1.17	Subsection 77FB(4) provides that determinations will apply to a class of alcoholic beverage only where that beverage is entered for home consumption, (the point at which excise duty is determined), on or after the making of the determination. However, because the new provisions were announced to commence from the Budget date, there is provision in subsection 77FB(5) for a determination to be made applying to alcoholic beverages entered for home consumption before the making of the rules but on or after the date of commencement of section 77FB (7.30 pm on 14 May 2002). [Schedule 1, item 6]
1.18	Subsection 77FB(6) provides that the CEO makes a determination public by publishing it and by publishing notice of it in the Gazette. The notice must include a brief description of the contents of the determination (subsection 77FB(7)) and the determination will be made at the later of the time of publication or publication of notice in the Gazette (subsection 77FB(8)). [Schedule 1, item 6]
Application and transitional provisions
1.19	These amendments are taken to have effect on and from 7.30 pm on 14 May 2002, by legal time in the Australian Capital Territory (Budget night).
Consequential amendments
1.20	Amendments to the Distillation Act 1901 and the 
Spirits Act 1906 in Excise Laws Amendment Bill (No. 1) 2002 and to the Excise Tariff Act 1921 in Excise Tariff Amendment Bill (No. 2) 2002 are required as a result of the amendments to the Excise Act. 
Excise Laws Amendment Bill (No. 1) 2002
Amendments to the Distillation Act 1901
1.21	References to new sections 77FA and 77FB in the Excise Act, to enable the charging of excise duty in the circumstances covered by section 77FA and the determining of the alcoholic content of alcoholic beverages under section 77FB, will be added after subsection 6(2). [Schedule 1, item 1]
1.22	The reference to ascertaining the strength of spirits by means of a hydrometer in section 46 will be repealed as this reference may conflict with rules under new section 77FB of the Excise Act, which may reflect more modern methods of measurement. [Schedule 1, item 2]
1.23	Section 47, which refers to ascertaining the strength of spirits by hydrometer after distillation or in any prescribed manner, is repealed and substituted with a provision that if the strength of the spirits cannot be ascertained by application of the rules under section 77FB then it may be ascertained after distillation or in any prescribed manner. [Schedule 1, item 3]
Amendments to the Spirits Act 1906
1.24	References to new sections 77FA and 77FB in the Excise Act, to enable the charging of excise duty in the circumstances covered by section 77FA and the determining of the alcoholic content of alcoholic beverages under section 77FB, will be added after subsection 3(2). [Schedule 1, item 7]
 Excise Tariff Amendment Bill (No. 2) 2002 
Amendments to the Excise Tariff Act 1921
1.25	References to new sections 77FA and 77FB in the Excise Act, to enable charging of excise duty in the circumstances covered by section 77FA and the determining of the alcoholic content of alcoholic beverages under section 77FB, will be added after the commencement note to the Schedule to the Excise Tariff Act 1921. [Schedule 1, item 1]