Taxes have a huge role to play when it comes to managing a country’s economy. Australia, just like other nations, has a variety of taxes that generate revenue and regulate industries. Among those multiple taxes, one that a lot of people are curious about is the excise tax or excise duty.
There are a lot of questions and doubts when it comes to excise duty. So here is all the information you would need when it comes to this indirect tax in Australia.
What are Excise Duties?
An excise duty is a tax on goods like tobacco, alcohol, fuel and petroleum products. Excise duty is an indirect and commodity-based tax imposed on goods that damage the health of a consumer or/and pollute the environment.
The goods subject to excise duties are chosen on the basis of their potential negative impacts on health, society and the environment. Excise tax (duty) is levied at the point of production or importing.
The responsibility for paying this falls on the producer, manufacturer, or importer of goods.
The Australian government administers excise duties through the ATO (Australian Taxation Office). The ATO ensures that the appropriate duties are paid on the manufacture, production or import of excisable goods.
However, you must understand that excise duties are different from Goods and Services Tax (GST). GST is a broader consumption tax that is applied to a wide range of goods and services. GST is a general tax on consumption, whereas excise duties specifically target goods considered to have certain social and health implications.
The objective behind levying excise duties is to generate revenue for the government and to discourage excessive consumption of such goods.
Common Excisable Goods in Australia
Multiple categories of products are subject to excise duties in Australia, such as:
Alcohol
Spirits, beer and other excisable beverages are excisable alcohol products. When produced or manufactured in Australia, these are subject to excise duty (excise tax).
However, you must keep in mind that when it comes to wine, you need to pay WET (wine equalisation tax) instead of excise duty.
Calculating alcohol excise duty
To calculate the alcoholic content, you would require the following:
- The type of excisable alcohol product (beer, spirits or other alcoholic beverages that fall under the excisable goods category)
- the alcoholic strength of the product
- the total volume of the product
- current excise rate applicable to that particular product
Let’s look at the formula that you can use to calculate excise duty (excise tax) on different alcoholic beverages.
The excise duty on beer is calculated on the alcoholic content above 1.15% by the following formula:
total volume (in litres) of product x (alcoholic strength – 1.15%) x current excise duty rate
The formula for spirits and other alcoholic beverages is as follows:
total volume (in litres) of product x alcoholic strength x current excise duty rate
To know more about this, you can reach out to the official website of the Australian Taxation Office.
Lodging and paying
Who needs to lodge an excise return? The excise license holder needs to lodge an excise return and may also need to pay excise duty. This should be done before delivering excisable goods into the Australian domestic market.
In case you wish to defer lodgement and payment, you would need periodic settlement permission or PSP from the Australia Taxation Office. PSP will allow you to defer both lodgment and payment until after delivering the excisable goods into the domestic market.
Payment of excise duty is due at the same time as the excise return lodgment date. You will need to pay attention to the excise duty rates as they can change mid-way through the reporting period.
Tobacco
What’s surprising is that tobacco seed, leaf and plant are non-excisable goods. But, you will need an excise tobacco license from the Australian Taxation Office to grow, produce or deal in tobacco. You will need the ATO’s permission to move tobacco or use it for personal use.
As of now, no one has a license to grow tobacco seed, plant or leaf for personal use or commercial sale. These licenses are rarely granted as they are subject to strict criteria and conditions.
Cigars, cigarettes and loose tobacco, on the other hand, are excisable goods, and thus one has to pay excise duty on these tobacco products. However, (at the time of writing), there is no legal tobacco manufacture occurring in the nation. If you wish to manufacture tobacco, you will require the license, need to lodge an excise return and then pay excise duty.
Fuel and Petroleum products
To deliver excisable fuel or petroleum products into the Australian domestic market (from excise-licensed premises), you will have to lodge an excise return and pay excise duty (excise tax).
Home consumption is also used in the Excise Act 1901, and it demonstrates how excise tax (excise duty) is imposed on the goods that are going to be consumed or used in the Australian domestic market. No excise duty or excise tax is payable if those goods are exported.
Here are some examples of fuel or petroleum goods that are excisable goods if manufactured, produced or stored in Australia:
- petroleum fuels, like diesel and petrol
- biofuels
- gaseous fuels
- crude oil and condensate
- lubricants (oils and greases)
- solvents like turpentine and white spirits
- recycled petroleum products.
Calculating fuel excise duty
In order to calculate the amount of excise duty (excise tax) you need to pay, you would require the following:
- the type of excisable good
- the total volume of it
- the current excise duty rate for that excisable good
To calculate the excise duty to be paid on liquid fuel and petroleum products, you use the following formula:
Total volume (litres) of the product x excise duty rate (current)
You will need to keep adequate records that will be used to show how you calculated the amount of excise duty to be paid.
Bunker fuel includes all kinds of petroleum products, such as fuel oil, diesel or aviation fuel. This fuel is either used by ships as fuel or utilised to power auxiliary equipment, including helicopters.
Excise equivalent goods (imports)
Excise equivalent goods or EEGs are imported tobacco, alcohol or petroleum products that would have been subject to excise if they were produced or manufactured in Australia.
Instead of paying excise duty (excise tax) on these goods, you usually need to pay an equivalent customs duty. EEGs can be used to manufacture excisable goods. Along with this, when these goods are imported, you will have to fulfil the customs duty obligations that include licencing, registration, lodgement, payment and record keeping.
Significance and Benefits
So, what are the benefits of excise duties?
- Excise duties generate a significant amount of revenue for the government. The generated revenue can be used to fund public services, social welfare programs and infrastructure projects.
- By making specific products more expensive through excise duties, The government aims to regulate excessive consumption. This is relevant for certain goods like tobacco and alcoholic beverages that have adverse social and health impacts.
- Excise duties on petroleum products help incentivise cleaner energy sources and reduce greenhouse gas emissions.
How does excise duty affect my business?
Businesses producing, manufacturing or sorting excisable goods in Australia must have an excise license. The Australian Taxation Office (ATO) issues excise licenses to businesses.
Along with this, once a business receives its license, the business must lodge excise returns and also pay excise duty. You should visit the official website of the Australian Taxation Office to ensure that you are lodging your returns in the correct manner. Providing wrong information to the ATO will result in a delay in the processing of the excise return.
You might have come across a term called ‘underbond’ when it comes to excisable goods. It is used when excise duty (excise tax) has not been paid on excisable goods. The underbond excisable goods remain under the control of the ATO.
In case you wish to legally move underbond excisable goods between excise-licensed premises, you will have to take permission from the ATO.
Excise duty rate
Excise duty rates often change, which is why you must ensure that when you are calculating your liability, you use the correct excise duty rates.
The excise duty amount varies depending on the type and quantity of the goods. Since different excise rates are applicable to different goods, the Australian Taxation Office specifies it to make things easier for you.
Currently, beer with an alcohol content above 1.15% by volume (in the finished product) is subject to excise duty (excise tax).
Key Takeaways
Excise duties are intended to discourage excessive consumption of goods like tobacco and alcohol. As a result, excise duties (excise taxes) are different from income tax or sales tax.
The federal government uses the excise tax revenue for a variety of purposes, such as health initiatives, social welfare programs, and environmental initiatives, among many other things. So the excise duty paid to the government will help them strike a balance between economic development and societal well-being.
You should refer to the official website of the Australian Taxation Office to learn your tax liability as per your circumstances. If you are looking for professional advice on your tax matters, contact Clear Tax Accountants. We are a team of experienced professionals who can help make Australia Taxation easier for you.
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