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Wine Taxation


The release of the Commonwealth Government’s Tax Discussion Paper in March 2015 has re-raised a number of contentious issues about how wine and other alcoholic beverages are taxed. The beverage taxation system in Australia has reportedly been described as a ‘dog’s breakfast’ by former Treasurer, Peter Costello, and as contradictory in terms of policy objectives by the Henry Tax Review. The question of reforming the Wine Equalisation Tax (WET) has split the wine industry.

The WET was introduced in 2000, replacing the pre-GST wholesale sales tax applicable to wine. The WET is a pre-GST ad valorem 29 per cent tax on the wholesale price of wine (as well as other fermented fruits products like cider). As it is value based, the amount of WET payable depends entirely on the wine’s value, unlike most beverages which are taxed at a rate dependent on their alcohol content.

Actual rate

As the amount of tax paid on wine depends entirely on the value, the more one pays, the higher the tax component, just as the cheaper the wine is, the smaller the tax component. For example, if a regular bottle of wine (750 ml) had a wholesale price of $20 it would have a tax component of $5.80 with a final pre-GST price of $25.80. For a four litre $20 cask of wine the tax would also be $5.80. If both wines had the same alcohol content (say 14 per cent), than the tax paid per standard drink would be $0.70 for the bottle and $0.13 for the cask. A light beer in comparison pays $0.40 per standard drink. 

Stakeholder positions

Critics of the WET have claimed that it encourages the consumption of cheap wine, which is a significant concern to health professionals. Unsurprisingly Treasury Wine Estates, which owns the Penfolds brand (as well as a large number of other wine brands), and Pernod Ricard (owner of Jacob Creek and spirits Chivas Regal and Absolut vodka) call for reform to the WET. The craft brewing industry have also been vocal in their calls for reform to the WET, which they claim provides incentives for wineries to produce low value, high alcoholic strength products (although they do not appear to have raised this in their submission to the discussion paper). Support for the status quo, on the other hand, seems to mostly originate from the wine industry. Wine Grape Growers Australia (the peak industry body for winegrape growers) for example favour the current system, as do Riverland Wine (representing wine grape growers and producers in the Riverland region of Australia), Murray Valley Winegrowers (representing wine growers and producers in the Murray Valley region), and Accolada Wines (owners of the Hardys and around 50 other wine brands).

Absent from the debate is the Winemakers Federation of Australia (WFA), the peak industry body for the wine industry. They state that this is due to the conflicting position of members. The WFA, rather than calling for the maintenance of the status quo, or for reform, have in previous circumstances called for the removal of the New Zealand WET rebate. The WET rebate (technically the producer rebate) is a rebate of up to $500,000 per financial year to Australian and New Zealand winemakers. The Treasury Department have been directed to draft a WET rebate discussion paper to be released in July 2015. At the time of writing, no such paper has been released.

 

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