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Fundamentals of Excise Taxation - Scott Cass-Dunbar_Australia.pdfAlcohol taxation principles: net...
Transcript of Fundamentals of Excise Taxation - Scott Cass-Dunbar_Australia.pdfAlcohol taxation principles: net...
Slide 1
Fundamentals ofExcise Taxation
Master ClassThe Henry Review (Australia)
Mr Scott Cass-DunbarEconomic Counsel,
Distilled Spirits Industry Council of Australia (DSICA)
Seventh Asia Tax ForumExcise Taxation Master Class
20 October 2010, Siem Reap
Slide 2
Presentation overview
• The Henry Review process• The Government’s response• Design principles for the tax system• Tobacco taxation: recommendations• Road transport taxation: recommendations• Alcohol taxation: design principles in action
Slide 3
The Henry Review
• May 2008: Australia’s Future TaxSystem Review, a “root andbranch” review of the AustralianTaxation System led by Dr KenHenry (Secretary, Department ofthe Treasury)
• The review comprehensively examined the Australian taxsystem and made recommendations on how to positionAustralia to deal with the demographic, social, economicand environmental challenges of the 21st century
Ken Henry
Slide 4
Areas of review
• The Henry Review undertook a detailed analysisof the following areas:– Personal taxation– Investment and entity taxation– Land and resource taxes– Taxing consumption– Taxation as a social policy instrument– The transfer system– Institutions, governance and administration– Macroeconomic and fiscal impacts
• Analysis of current GST/VAT arrangementswere omitted from the scope of the review
Slide 5
The review process
• The review process was highly consultative, usingsubmissions, conferences and outsourced dataanalysis to inform the final report
19 Aug 08 to17 Oct 08
Publicconsultation
round 1
Dec 08 to May09
PublicConsultation
round 2
18-19 June 09
Tax policyconferenceMelbourne
Dec 09
Henry Reviewdelivered togovernment
10 Dec 08
Consultationpapers
released
13 May 08
Henry ReviewAnnounced as
part of 1st SwanBudget
26 Mar 10
KPMG Econtechanalysis of
Australian TaxSystem completed
Slide 6
Key recommendations
• The review made a total of 138recommendations, covering all areas ofthe tax system (with the exception ofGST/VAT)
Slide 7
Government’s response torecommendations
• To date, the Government has fullyaccepted two recommendations andpartially accepted a third
Prime Minister, Hon Julia Gillard, MP
• The newly electedAustralianGovernment hascommitted to a publicforum of experts by30 June 2011
Slide 8
Design principles for the taxsystem
• The Henry Review identifies five key designprinciples of an ideal tax system:– equity;– efficiency;– simplicity;– sustainability; and– policy consistency
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Design principle 1: equity
• Equity refers to individuals andbusinesses with similar economiccircumstances and like products bearingsimilar taxation burdens
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Design principle 2: efficiency
• Efficiency refers to the use of taxationarrangements which minimise compliancecosts for taxpayers and administrationcosts for government
• A good tax system is designed to minimisepossible costs to economic efficiency whiledeterring grey market activity
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Design principle 3: simplicity
• A good tax system should be easy tounderstand and simple to comply with(for both taxpayers and administrators)
• A simple and transparent system makes iteasier for people to understand theirobligations and entitlements
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Design principle 4:sustainability
• A tax system should have the capacity tomeet the changing revenue needs ofgovernment on an ongoing basis,independently of changing consumerbehaviour
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Design principle 5: policyconsistency
• To the greatest extent possible, taxationshould be consistent with the broaderpolicy objectives of Government
• In the context of excise taxation, thisexcise system should establish anappropriate tax environment in whichresponsible consumption decisions can bemade
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Tobacco taxation:recommendations
• The Henry Review provided three recommendations for the reformof tobacco taxation in Australia
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Road transport taxation:recommendations
• The Henry Review provided the following recommendation for thereform of fuel taxation in Australia
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Alcohol taxation:design principles in action
• The Henry Review provided two significant recommendations forthe long-term reform of alcohol taxation in Australia
Arc
hite
ctur
eco
mpo
nent
Com
plia
nce
com
pone
nt
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Alcohol taxation principles:equity
• The Review proposes a single volumetric rateof tax applied to all alcohol products– This ensures non-discrimination between products by
taxing only the alcohol content, and that all productsare subject to the same tax burden
===
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Alcohol taxation principles:efficiency
• The Review proposes a review of theadministration of alcohol tax to ensurerevenue is raised at the least possiblecost to economic efficiency and withminimal administration and compliancecosts
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Alcohol taxation principles:simplicity
• A single volumetric rate of tax is to be appliedto all alcohol products; this removes the need formultiple taxes applying to different alcoholproducts and the need to distinguish betweendifferent alcohol products
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Alcohol taxation principles:sustainability
• The Review proposes that the single rateof taxation be subject to indexation toensure that the tax base retains its valueover time and in line with inflation
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Alcohol taxation principles:policy consistency
• The Review proposesthe use of a lowexcise-free thresholdof 1.15% applying to allalcohol products– This encourages
consumption of low-alcohol products
Excise Free (e.g. 1.15%)
Excise Paid(e.g. on 3.85%)
No tax paid
Alcohol taxation principles:use of narrow-based taxes
• A distinction can be drawn betweennarrow and broad-based taxes
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Purp
ose
of ta
x
Revenueraising
Behaviourchanging
Narrow BroadTax base
Alcohol taxation principles:net marginal spillover cost
• The Henry Review indicates that excisetaxation on alcohol products should beused to address the net marginalspillover cost arising from risky and highrisk consumption, not as a revenue-raisingtool
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Alcohol taxation principles:spillover costs
• The Henry Review defines spillover cost in thefollowing manner:
• Alcohol consumption at low risk levels hasno spillover cost
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Alcohol taxation principles:alcohol abuse costs
• There are three views of costs associated withrisky and high-risk alcohol consumption
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Costs borne by theindividual
$
$
$
$
$
$
Costs borne bysociety
$
$
$ $
$
$$
$
Overall costs
$$
$
$
$
$
$$
$
$
Alcohol taxation principles:modelling spillover costs (2)
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Overallcosts
Costs borne bythe individual–
$
$
$
$
$
$–
Alcohol taxation principles:net marginal spillover costs
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Tang
ible
cos
tsIn
tang
ible
cos
ts
$
Lost labour(workforce - reduction
in workforce;absenteeism; home –
premature death;sickness)
$
Resources used inabusive
consumption
$
Loss of life
$
Pain & suffering
$Healthcare(medical; hospital;
nursing homes;pharmaceuticals;
ambulances)
$
Road accidents
Crime(police; courts; prisons;
property; insuranceadministration; productivity
of prisoners)
Alcohol taxation principles:calculated single specific rate
• The total net marginal spillover costscan then be divided by total alcoholconsumption (in LPAs) to give a singlespecific rate of taxation
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Alcohol taxation principles:transition arrangements
Transition to Single Target Excise Rate
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0
Exci
se
Rate
($
AUD
pe
r LP
A)
Spirits Excise RateBeer Excise RateSingle Excise Rate
Indexation onspirits exciserate is frozen
Indexation onbeer excise rateis accelerated
Target single exciserate moves withinflation levels
Point at which beer excise rate meetstarget excise rate then moves with
standard indexation rate
Point at which spiritsexcise rate meetstarget excise ratethen moves with
standard indexationrate
Indexation can be used to transition to the single specific rate
Slide 30
Alcohol taxation principles:transition arrangements (2)
• The Review proposes that the AustralianGovernment should develop and announce along-term transition path to a common alcoholtax to ensure that both producers andconsumers have sufficient time to adjust to thenew arrangements
• The planned public forum ofexperts to be held before 30June 2011 is likely to discuss thetransition path in further detail
Slide 31
Thank you
Presenter Details
Mr Scott Cass-Dunbar
Economic Counsel,Distilled Spirits Industry Council of Australia
(DSICA)
+61 2 6248 1232