Taxation Arrangements for Tobacco and Tobacco Products

On 6 August, following the High Courts decision of 5 August on State and Territory business franchise fees (BFFs), and in response to a request from the States and Territories to implement a safety net, the Commonwealth introduced measures to protect State and Territory revenue from tobacco, petroleum and alcohol. The States and Territories acknowledged that these arrangements would represent State taxes imposed and collected by the Commonwealth at the request and on behalf of the States and Territories.

All of the revenue collected by the Commonwealth under these arrangements will go to the States and Territories (after allowing for Commonwealth administrative costs). The Commonwealth is not increasing its revenue.

Following the request from the States and Territories, the Commonwealth increased the customs and excise duty on tobacco by $167 per kilogram. At the time of these arrangements being put in place, the Treasurer stated that the Commonwealth was aware of the effects on the tobacco industry of replacing the value-based BFF systems with a weight-based duty system. Given the need to implement a safety net at short notice, it was necessary at the time to use the existing Commonwealth duty base. However, the Treasurer stated that the Commonwealth would hold discussions with the industry in an attempt to get agreement on implementing arrangements that would be neutral as between different manufacturers.

The Commonwealth has now concluded detailed discussions with the tobacco industry in an effort to resolve industry concerns. The States and Territories have also held discussions with the tobacco industry. The States and Territories have agreed to a lower tax take from tobacco and have requested that the Commonwealth put in place new arrangements for the surcharge taxation of tobacco.

In order to implement the changed taxation arrangements for tobacco, the Commonwealth has been asked by the States and Territories to remove the current customs and excise duty surcharge on tobacco and tobacco products of $167 per kilogram, and to replace it with:

• a hybrid option, involving an ad valorem surcharge of 50.32 per cent of the final wholesale list price (which includes both the total weight-based duty and the ad valorem component), along with a weight-based duty surcharge of $2.65 per kilogram; or
• a solely weight-based duty surcharge of $147.90 per kilogram, where there are no more than 1200 cigarettes per kilogram; or
• a solely weight-based duty surcharge of $265.73 per kilogram, where there are more than 1200 cigarettes per kilogram.

The States and Territories have also requested that the revenue raised from the surcharge on tobacco be distributed according to new distribution shares.

The Commonwealth has agreed to change the safety net arrangements for tobacco, and distribute the revenue collected from these arrangements, in the manner sought by the States and Territories.

Further details concerning the operations and timing of implementation of these new surcharge taxation arrangements should be sought from the Australian Customs Service.

CANBERRA
11 September 1997