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Following is a speech by the Secretary for the Treasury, Miss Denise Yue, in moving the second reading of the Dutiable Commodities (Amendment) Bill 1999 in the Legislative Council meeting today (Wednesday):

President,

I move the second reading of the Dutiable Commodities (Amendment) Bill 1999.

The Bill serves two main objectives - first, to strengthen the enforcement efforts of the Customs and Excise Department in tackling the problem of supply and use of illicit fuel; and second, to relax controls on home brewing.

Let me first deal with the proposal to tackle the problem of illicit fuel.

Under the Dutiable Commodities Ordinance, the supply and purchase of dutiable hydrocarbon oil is prohibited. Dutiable hydrocarbon oil comprises light diesel oil, petrol, and aircraft spirit oil, for which duty has not been paid. Anyone who contravenes this provision commits an offence and is liable on conviction to a penalty.

In enforcing such prohibitive provisions, Customs officers have encountered two major practical difficulties. One is proving the supply of illicit fuel, while the other relates to proving the use of detreated oil or dutiable light diesel oil as fuel by vehicles. These problems arise as certain illicit fuel is no different from the duty-paid ones in appearance. This makes it difficult for Customs officers to establish a case to take prosecution action.

To tackle the problem of proving the supply of illicit fuel, the Bill seeks to expand the scope of an existing presumption provision under the Ordinance. This provision currently presumes that hydrocarbon oil is dutiable if a person is actually transferring it to or from a vehicle's fuel tank at any locations other than those premises licensed under the Dangerous Goods (General) Regulations for storage of dangerous goods, including hydrocarbon oil. However, practical enforcement experience has revealed that the existing provision is too restrictive for effective enforcement of the law. This is because, in many cases, the supply of illicit fuel does not involve any fuel transfer to or from a vehicle's fuel tank on the spot. For example, illicit fuel may be sold in takeaway cans for drivers to refuel their vehicles at locations other than the supplying station. In such cases, Customs officers are not able to invoke the presumption.

We therefore propose to expand the scope of this presumption provision to include the sale, supply, purchase and receipt of, as well as any other dealings in, light diesel oil or petrol in any locations other than premises licensed specifically for storage of diesel oil and petrol under the Dangerous Goods (General) Regulations. This means that the light diesel oil and petrol traded in the premises not licensed for storage of diesel oil and petrol is presumed to be dutiable unless the person carrying out these activities can prove otherwise. However, Customs officers cannot invoke the presumption unless they have reasonable doubt on the dutiability of the light diesel oil or petrol. Such a requirement is already in the existing Ordinance.

As for the problem of proving the use of detreated oil or dutiable light diesel oil by vehicles as fuel, it has arisen because of the increasing difficulty to detect detreated oil by chemical testing on the spot. Detreated oil used to be detectable through testing of the chemical marker of the oil on the spot. However, culprits have recently been able to remove the marker so completely that renders such testing ineffective.

To address this problem, we propose to add a presumption to the effect that, light diesel oil found in the fuel tank of a motor vehicle with a sulphur content in excess of the maximum sulphur content prescribed under the Air Pollution Control (Motor Vehicle Fuel) Regulations is presumed to be dutiable. The current maximum sulphur content level is 0.05% by weight.

Let me explain the rationale underlying this new presumption. The current Air Pollution Control (Motor Vehicle Fuel) Regulations prohibit the supply of light diesel oil with a sulphur content higher than 0.05% by weight for vehicular use. Therefore, only light diesel oil with a sulphur content at or below 0.05% should be available from legitimate sources. It follows that all light diesel oil used by vehicles with a sulphur content above 0.05% is likely to be detreated oil or dutiable light diesel oil. That is why we propose to add a presumption based on the sulphur content of the light diesel oil. This presumption will not apply to light diesel oil used by vehicles arriving from the Mainland. This is because such light diesel oil, which may or may not have a sulphur content above 0.05%, is currently exempted from payment of duty under the Dutiable Commodities Regulations.

The above two presumptions will not apply to marked oil. This is because, unlike normal light diesel oil and petrol, marked oil is not dutiable goods under the current Dutiable Commodities Ordinance. The Ordinance only prohibits the use of marked oil as fuel by vehicles on the ground of deterring tax evasion, since such marked oil has replaced the duty-paid light diesel oil which should otherwise be used as vehicular fuel. We therefore do not consider it appropriate to include marked oil in the scope of the above presumption provisions seeking to deter illicit sale and purchase of light diesel oil and petrol. Moreover, marked oil is easily distinguishable from normal light diesel oil and hence does not require such presumption to facilitate enforcement against its illicit use by vehicles.

As part of the package to combat the problem of the supply and use of illicit fuel, we also propose to increase the maximum penalty for illegal supply and use of marked oil and detreated oil from $200,000 and imprisonment for two years, to $1,000,000 with no change to the imprisonment terms. This is to put it on a par with similar offences involving supply or purchase of dutiable light diesel oil.

Turning to the second objective of the Bill, that is the relaxation of controls over home brewing. Currently, the Ordinance makes no distinction between alcoholic liquors manufactured for commercial purposes and those brewed for personal use. Both kinds of liquors are subject to the same level of licensing controls and duty.

The Bill seeks to relax the controls over home-brewed alcoholic liquors for personal use by exempting them from both duty payment and licensing controls, provided that they comply with certain conditions aimed mainly at avoiding abuse. The move is in response to certain public criticisms that the existing controls are too stringent and have been a disincentive for those who wish to manufacture liquors for personal use. They will also bring our legislation on home brewing more into line with international practice. In fact, many of our major trading partners such as Australia, Canada, New Zealand and the UK do not impose any licensing requirements or duty on home brewing and home-brewed liquors.

The opportunity is also taken in this legislative amendment exercise to introduce technical amendments aimed at improving the structure of certain provisions of the Ordinance, in order to reflect the relevant legislative intent more clearly.

President, with these remarks, I commend the Bill to Members.

End/Wednesday, November 17, 1999

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