Wine is taxed differently to other alcoholic beverages in
Australia. It has its own tax, the Wine Equalisation Tax (WET).
The WET is imposed at the rate of 29 per cent on the wholesale value of wine.
All other alcoholic beverages are taxed on their alcohol content.
This generally makes the tax on wine, on a ‘standard drink’ basis, less than
other alcoholic beverages.
The WET is designed to be paid at the last wholesale point
of sale, which is usually the sale by the wholesaler to the retailer.
The WET is also unusual due to the large, widely available
rebate for eligible wine producers.  Eligible producers must:
- manufacture the wine from grapes, other fruit, vegetables or
honey they produce or purchase
- provide the grapes, other fruit, vegetables or honey to a
contract winemaker to be made into wine on their behalf or
- subject their wine to a process of manufacture —for example,
manufacturing finished wine from raw wine, or blending wines to make a
commercially distinct wine.
Exported wine is now liable for the WET.
Producers can currently
claim a rebate of up to $500,000. The rebate is estimated
to have cost the budget $330 million in 2016.
Some commentators are concerned that the WET rebate is being
rorted. The ATO has conducted a
number of investigations into rorting but no changes to the rebate have been made
(other than to increase the rebate level).
In March 2015 the Government released the Re:think tax
discussion paper. Several submissions to the
discussion paper called for reforms to the WET rebate (as well as the WET
generally). In August 2015, the
Government released the Wine
Equalisation Tax Rebate discussion paper which sought to ‘better inform
discussion and analysis of the WET rebate as part of the Tax White Paper
process and ongoing government policy development’.
Criticisms of the WET rebate
The Winemakers Federation of Australia (WFA) is a vocal
critic of the WET rebate and calls for it to be reformed.
The WFA is concerned that the WET rebate is compromised ‘on three fronts’,
- the ability of brokers, intermediaries and uncommercial
arrangements to access the entitlement
- the role of the rebate in delaying the correction of the
supply/demand imbalance by underpinning the conversion of uncommercial grapes
into bulk wine and ultimately low-equity cleanskins and home brands and
- the ability of New Zealand entities to access the entitlement on
unfair preferential terms. 
The WFA made a number of recommendations including:
- that the rebate should stop going to unintended recipients
- remove the eligibility of bulk and unbranded wine to gain access
to the WET rebate over four years
- abolish the application of the scheme to New Zealand producers
- encourage consolidation by introducing transitional rebate
measures to allow the second rebate on mergers of two businesses entitled to
the rebate. 
A Senate inquiry into the Australian grape and wine industry
was established in March 2015 to look into, among other things, the impact and
application of the WET rebate on grape and wine industry supply chains.
The Committee heard evidence from a large number of sources that the WET rebate
is working against the profitability of the Australian wine industry and agreed
that reform is urgently required.
In its report, the Committee agreed that widespread rorting
and misapplication of the WET rebate was also taking place.
The Committee recommended ‘that the Government phase out the current [WET]
rebate over five years, allocating the savings to a structural adjustment
assistance program for the industry including an annual grant to genuine cellar
door operators to support their continued operation’.
2016–17 Budget changes
The WET rebate measures announced in the 2016–17 Budget are
modest. They will:
- reduce the WET rebate cap from $500,000 to $350,000 on 1 July
2017, and to $290,000 on 1 July 2018.
- better target assistance and reduce distortions in the wine
- provide $50 million over four years to the Australian Grape Wine
Authority (AGWA) to promote tourism within Australia, and Australian wine
Importantly, the WET rebate changes will tighten eligibility
criteria, making it a requirement that producers must either own a winery or
have a long-term lease over a winery, and sell packaged, branded wine
domestically. It is estimated that
these measures will have a $250 million gain to the budget over the forward
estimate period. Amendments will be
required to legislation to give effect to the change in the WET rebate cap and
the eligibility criteria.
The Government says it will prioritise the introduction of
additional WET rebate integrity measures. No further details are
available around the proposed changes at this stage.
ATO, ‘Wine Equalisation Tax’, op. cit.
ATO, ‘Wine Equalisation Tax’, op. cit.
Treasury, Tax Expenditures Statement 2015, Canberra, January 2016,
R Dossor, ‘Wine
taxation’, Flagpost, Parliamentary Library blog, 3 August 2015.
Australian Government, Budget paper no. 2: 2016–17, op. cit., p.
All online articles accessed May 2016.
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