As outlined in A New Tax System (ANTS) the Government is introducing a new per stick tobacco excise to replace existing tobacco excise, which is now applied on both a weight and ad-valorem basis.
Today the Government is announcing final details regarding the implementation of this measure.
This reform has been recommended by health experts and is favoured by most other countries. It means uniform tax on each cigarette and removes the ability to vary tax by adjusting price and weight. In addition it will streamline administration of collection of tobacco excise.
In recognition of the significant change this represents to the industry, the Government has decided that the revised arrangements will now apply from 1 November 1999, rather than 1 July 1999 as previously announced, in order to give sufficient time for cigarette manufacturers to implement required changes.
At present, tobacco excise is calculated under a complex formula involving a combination of a Commonwealth weight based charge, plus a hybrid State surcharge based on both the wholesale price of tobacco and the tobacco weight. These complex arrangements were introduced as a necessary short-term measure to shore up State revenue when, in August 1997, the States business franchise fees on tobacco products were held to be unconstitutional by the High Court.
These arrangements encourage the manufacture of low value, low weight cigarettes, principally packaged in large packets. This taxation advantage has skewed consumption towards higher volume, lighter cigarettes, which health experts consider more harmful on health grounds.
The new single rate "per stick" excise will apply to all cigarettes with a tobacco content up to and including 0.8 grams per cigarette. An excise per kilogram of tobacco will apply to all other tobacco products, including cigarettes heavier than 0.8 grams of tobacco per cigarette, loose tobacco and cigars.
The per stick excise rate will be set such that the excise per kilogram of tobacco on a cigarette containing 0.8 grams of tobacco will be the same as the excise on a kilogram of tobacco. Incorporating the 2 February 1999 CPI adjustment the per stick excise rate is 18.815 cents per stick, with a weight based rate of $235.19 per kilogram of tobacco. These rates are subject to existing indexation arrangements in the future.
It is expected that as a result of these changes the price of premium brand cigarettes will not fall in price but high volume, low weight cigarettes will rise in price.
The Government will be carefully monitoring the cigarette market prior to the introduction of these arrangements to ensure that excessive quantities of budget cigarettes are not produced and cleared at current excise rates for sale after 1 November 1999.
The partial year impact of these changes in 1999-2000 is expected to provide additional revenue of around $300 million. In subsequent years the full year impact is expected to be additional revenue of around $440 million.