Whaitiri Meka; McKelvie IanCUSTOMS AND EXCISE (TOBACCO PRODUCTS) AMENDMENT BILLFirst ReadingHon MEKA WHAITIRI (Minister of Customs): I present a legislative statement on the Customs and Excise (Tobacco Products) Amendment Bill.DEPUTY SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon MEKA WHAITIRI: I move That the Customs and Excise (Tobacco Products) Amendment Bill be now read a first time. The purpose of this bill is to ensure the correct excise and excise-equivalent duty is able to be applied to certain tobacco goods and to reduce revenue evasion. Tobacco products are highly taxed for public policy reasons in particular to reflect the negative health impacts and costs of tobacco consumption on individuals and society. The bill addresses two issues: under-declaration of the tobacco content of water-pipe tobacco and the need for technical amendment to the definition of tobacco products in the Customs and Excise Act 2018. These issues are not related but are both urgent due to their impacts on Crown revenue and the potential to undermine the Smokefree Aotearoa 2025 Action Plan. Water-pipe tobacco is also known as flavoured shisha hookah molasses and fruit tobacco. Unlike other tobacco water-pipe tobacco contains other items including glycerol. It may also contain aromatic oils and extracts molasses or sugar and may be flavoured with fruit. These other items may make up a significant proportion of the weight of the product. It is for this reason that in New Zealand it is taxed based on the kilo of tobacco content. When importing water-pipe tobacco importers are required to declare the kilograms of tobacco content on their import entry. Customs suspects that self-declaration of the tobacco content by some importers is leading to material under-declaration of tobacco content in water-pipe tobacco products and revenue evasion.In the cases of other goods where Customs question the information provided testing and investigations can be undertaken to determine the accuracy of the information. As there is no testing facility available internationally or domestically it is not technically possible for Customs to accurately determine the tobacco content of water-pipe tobacco. Customs is forced to use the declared tobacco content provided by importers to determine the excise on the product. As the accuracy of the declared tobacco content cannot be determined this also means Customs is unable to meet the evidential threshold for seizure and prosecution. The bill addresses the difficulty in accurately determining tobacco content in water-pipe tobacco for the correct levying of excise and excise-equivalent duty. The bill achieves this through imposing import controls changing the statistical unit for calculating duty and creating a new excise and excise-equivalent duty rate for water-pipe tobacco.Paying incorrect revenue denies the Crown of revenue that is due to it and also undermines our health strategy of using tobacco taxation to increase prices reduce consumption and reduce the harm that smokers cause to New Zealanders' health. The supply of cheaper tobacco products can also counteract the incentive to quit tobacco products that are fully taxed. It also creates an uneven playing field in the market as honest importers who correctly declare the tobacco content of their goods are able to be undercut on price by dishonest importers who evade duty.To combat this the bill changes the method of calculating excise and excise-equivalent duty from per kilo of tobacco content to total weight of the water-pipe tobacco including anything added to the tobacco during manufacturing or processing. This brings New Zealand into line with a number of other countries such as the United Kingdom and Australia who have encountered the same issues in determining tobacco content of this product. Moving from tobacco content to total weight requires a new excise and excise-equivalent duty rate. The bill amends the rate to one based on an assumed tobacco content of 15 percent. Customs believes 15 percent is a fair standardised percentage broadly in line with the actual tobacco content that most of this type of product is likely to contain. The bill sets the excise and excise-equivalent duty rate for water-pipe tobacco at $234.77 per kilogram based on the current tobacco excise rate and a tobacco content of 15 percent. This bill imposes the same import controls on water-pipe tobacco that most other tobacco products are subject to making it a prohibited import. Those wanting to import water-pipe tobacco will require a permit to be issued by Customs prior to importation. The bill is not about making the system harder for compliant importers. It will have minimal impact on them. They will need to apply for a permit to import. There is no cost for a permit to import. This bill aligns with the Government's vision of eliminating the harm that smoked tobacco causes communities and of having a tax system that is efficient and fair. Finally this bill also amends the definition of tobacco products" in the Customs and Excise Act 2018 to include new tariff and excise headings. These new headings are required as a result of changes made to the Harmonized Commodity Description and Coding System an international system that codifies all goods that came into effect on 1 January 2022. The Customs and Excise Act 2018 defines tobacco products for the purpose of the annual inflation adjustment by reference to specific tariff and excise headings. The harmonised code has reclassified some tobacco products under a newly created tariff heading which also needs to be included in the relevant excise item. These must be included in the definition of tobacco products to enable the goods to be adjusted annually for inflation. Without this they will become out of step with the excise and excise-equivalent rates for other tobacco products. This bill amends the definition of tobacco products to include the new excise item and tariff heading ensuring that excise on all tobacco products can be adjusted for inflation. I ask Parliament to support this bill. It will come into force the day after Royal assent. I am confident that it will ensure a fair market playing field for legitimate importers of water-pipe tobacco protect Crown revenue and support the Government's Smokefree Aotearoa 2025 Action Plan. I am pleased to commend this bill to the House.ASSISTANT SPEAKER (Ian McKelvie): The question is that the motion be agreed to."