APPENDIX 35
Memorandum Submitted by SEEBOARD and eleven
other electricity supply companies
You have invited industry to submit written
evidence to the Trade and Industry Committee on the impact on
industry of the proposed Climate Change Levy (CCL).
The Government's statement of intent on environmental
taxation published in July 1997 contained the following paragraph:
``Environmental taxation must meet the general
tests of good taxation. It must be well designed to meet objectives
without undesirable side effects; it must keep deadweight compliance
costs to a minimum: distributional impact must be acceptable;
and care must be had to implications for international competitiveness''.
I understand that the Electricity Association
will be providing written and, possibly, oral evidence on behalf
of the Electricity Supply Industry on the impact of the Levy on
competition and the environment. We, on behalf of the 12 electricity
companies listed below, would like to draw the Committee's attention
to the impact of the Levy on our billing systems.
Section 12 of the consultation document published
by HM Customs & Excise suggested two broad options for the
provision of relief in those cases identified for special treatment
(energy used to produce other energy products, non-energy use
of fuel products and energy intensive industries together with
the use of energy by public transport). The two options are:
``1. relief provided by the customer certifying
to the supplier that the Levy should not be charged on a proportion
of use, or should be charged at a lower rate; and
2. relief provided by the customer claiming
a refund of the Levy from Customs and Excise''.
Representatives of the gas and electricity industries
have had a meeting with the Excise Policy Group (``EPG'') to express
concern that the provision of relief by way of Option 1 would
require highly complex changes to our accounting and billing systems
and may not be ready for implementation in April 2001. In addition
set-up and continuing compliance costs would be unnecessarily
high. This has been set out in greater detail in the submissions
of individual companies in the gas and electricity industries
and their trade organisations and in subsequent correspondence
with the EPG.
The gas and electricity industries believe that
the use of Option 2 will protect the tax base and ensure that
the right amount of tax is collected from the right taxpayers
at the right time. On the other hand, the use of Option 1 will:
give estimated and therefore inaccurate Levy
charges;
make the bills more complicated for customers
to understand if two or more rates of Levy and exemptions are
included;
introduce a second layer of certification (on
top of VAT certification) which could result in confusion for
customers and suppliers alike; and
be difficult and expensive to programme into
the billing systems of energy suppliers which systems are already
complex.
The accuracy of Levy charges is of paramount
interest to Government and suppliers alike, because unlike VAT
which is a pass-through for a registered business, CCL is a real
cost to the customer. The certificate envisaged under Option 1
would have to show 'a percentage usage of (say) the lower rate
of Levy. To be accurate, the actual percentage would have to vary
from month to month (particularly so if the business is seasonal)
and this would be extremely difficult to administer.
Customers overpaying the Levy will demand refunds,
adding to suppliers' administration costs. On the other hand,
customers may be reluctant to volunteer evidence of underpayments.
In fact, underpayments of Levy are more likely, as customers may
over-estimate usage which is subject to lower rates.
The use of CCL certificates presents a Levy
avoidance opportunity which is similar to that identified by Customs
in respect of VAT certificates and which they are currently trying
to address. Option 1 will also undoubtedly give inaccurate results
where the supplier's customer is not the final consumer. Examples
of this include retail shopping complexes, business parks and
industrial complexes. Taking the industrial complex as an example,
the electricity may be used for:
the landlord's own use, some or all of which
may be at a lower rate;
the landlord's heating and lighting, subject
to the standard rate Levy; and
onward sale to tenants who may be business users
entitled to a lower rate Levy or an exemption or to tenants with
domestic supplies.
Under Option 1, the supplier would have to accept
certificates submitted by landlords who onward supply to tenants,
some of whom may not have metered supplies. Unless the landlords
are registered for CCL purposes, they would recoup the Levy by
increasing their onward charges. As the mix of actual usage is
unlikely to be the same as the estimated mix on the certificate,
the landlord would make a profit or loss from the Levy.
For the reasons stated above, the gas and electricity
industries have urged Customs to choose Option 2 which will protect
the tax base and minimise deadweight compliance costs.
for and on behalf of:
Eastern Group Plc Scottish and Southern Energy
Plc
London Electricity Plc SEEBOARD plc
National Power Plc South Western Electricity
Plc
Northern Electric and Gas Ltd United Utilities
Plc
Powergen Plc Yorkshire Electricity Group Plc
Northern Electric and Gas Ltd
June 1999
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