Bills Digest No. 151  1998-99 A New Tax System (Wine Equalisation Tax) Bill 1999

Numerical Index | Alphabetical Index

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.


Passage History
Background - Tax Reform Package
Background - Wine Equalisation Tax
Main Provisions
Concluding Comments
Contact Officer and Copyright Details

Passage History

A New Tax System (Wine Equalisation Tax) Bill 1999

Date Introduced: 24 March 1999

House: House of Representatives

Portfolio: Treasury

Commencement: 1 July 2000



The purpose of the A New Tax System (Wine Equalisation Tax) Bill 1999 (the Bill), is to maintain wine prices and revenue collection from wine sales at current levels.

Wine prices and taxation revenues would otherwise fall upon the abolition of Wholesale Sales Tax (WST) and the introduction of the proposed Goods and Services Tax (GST).

Accordingly the following Bills will introduce a new tax on wine to be levied in addition to the GST:

  • A New Tax System (Wine Equalisation Tax) Bill 1999
  • A New Tax System (Wine Equalisation Tax Imposition-General) Bill 1999
  • A New Tax System (Wine Equalisation Tax Imposition-Customs) Bill 1999
  • A New Tax System (Wine Equalisation Tax Imposition-Excise) Bill 1999

The current WST rate on wine is 41 per cent. The wine equalisation tax will be levied at a rate of 29 per cent and will apply to wine (including non-grape wine) and to cider, perry, mead and sake.

Background - Tax Reform Package

On 13 August 1998 the Federal Government released proposals for reform of the Australian tax system(1) of which, a GST was the centrepiece.

The tax reform plan proposes to:

  • Introduce a GST which eliminates sales tax and a range of nine other indirect taxes
  • Change Commonwealth-State financial relations by providing States and Territories with an independent revenue base
  • Implement significant changes to individual marginal tax rates
  • Implement a major rationalisation of family assistance
  • Replace the various existing taxation payment and reporting systems of company tax, provisional tax, PAYE,(2) PPS(3) and RPS(4) by one quarterly tax payment system, PAYG(5)
  • Introduce a new universal business number system
  • Move toward an entity taxation system which is directed toward the elimination of tax advantages between different business structures, and
  • Simplify the imputation system and introduce refunds for excess franking credits.

As part of the tax reform package the Government proposed that wine, and beverages consisting primarily of wine, will become subject to a Wine Equalisation Tax to replace the difference between the current 41 per cent wholesale sales tax and the proposed GST.

On 25 November 1998, the Senate referred issues relating to the GST and the new tax system to a Select Committee and three of its Reference Committees.(6) In February 1999 the Senate Select Committee produced its First Report.(7) The three Reference Committees produced their reports in March 1999.(8)

Background - Wine Equalisation Tax

1. A brief history of Wine Tax

The Australian wine industry has been subject to an array of taxation measures over the years, commencing in 1930.

These measures are summarised in the following table:


Taxation measure


General rate of Wholesale Sales Tax (WST) of 2.5% introduced


WST of 2.5% removed


Excise of 50 cents per gallon applied


Excise of 50 cents per gallon halved and then removed after six months


WST of 10% introduced


WST increased to 20%


WST increased to 31%


WST reduced to 22% in October


WST increased to 24%


WST increased to 26%


High Court decision on State franchise/licence fees led to an increase in WST from 26% to 41% with the additional 15% rebated to the State governments and in turn rebated to wineries for their cellar-door component of sales

2. Current taxation of alcoholic beverages

Alcoholic beverages in Australia are essentially subject to either sales tax (which is an ad valorem tax) or volumetric excise or both.

Ad valorem tax is a rate of tax, which is fixed according to the value of the dutiable transaction or item.

A volumetric tax is also an indirect tax but one directly related to the alcohol content of the beverage.

Wine is subject to sales tax at the rate of 41 per cent.

Beer and spirits are subject to a combination of sales tax at the rate of 37 per cent plus a volumetric tax, which is calculated by multiplying the percentage of alcohol content of the beverage by a fixed dollar amount per litre.

3. Position of the wine industry

The position of the wine industry put forward by its representative body, the Winemakers' Federation of Australia (WFA), and as stated in its submission to the Senate Select Committee on A New Tax System,(9) is that the wine industry:

  • Supports the introduction of a broad based goods and services tax
  • Does not seek a discount from current tax levels to a GST only position in the short term
  • Supports an ad valorem based top-up tax, and
  • Rejects a volumetric tax.

The WFA also recommended that:

  • The level of the Wine Equalisation Tax (Wine Tax) be set at a rate equivalent to the tax burden on the industry under the current WST regime, that is at a maximum of 24.5%
  • Wine used for promotions/tastings/samples should be exempt from Wine Tax in addition to being GST-free, and
  • Cellar-door sales for small winery businesses should be free from Wine Tax, although they should continue to be subject to GST.

Main Provisions

1. Summary

  • Wine Tax is a single stage tax applying generally to assessable dealings in wine, unless an exemption applies, at the wholesale level
  • Wine Tax is imposed on the wholesale selling price of wine
  • If wine is not sold by wholesale:
  • tax will be imposed on the retail sale or use of the wine, and
  • will be based on alternative values such as the notional wholesale selling price
  • If the wine has already been taxed, then a credit for the earlier tax will reduce the tax payable on the later dealing, and
  • Wine Tax is calculated on the GST exclusive value of wine in most cases.

2. Liability to Wine Tax

Proposed Part 2 sets out the rules that establish liability for Wine Tax.

2.1 General rules for taxability

The general rules relating to taxability are found in proposed Division 5.

The Assessable Dealings Table (proposed subclause 5-5(4)) is central to establishing liability to the tax and sets out:

  • All the assessable dealings that can be subject to Wine Tax
  • Who is liable for the tax
  • The time the liability is incurred, and
  • Normal taxable value.

There are essentially four categories of assessable dealings subject to Wine Tax:

  • Sales (wholesale and retail)
  • Application to own use
  • Local entry, and
  • Removal from customs clearance area.

The wine must be in Australia at the time of the dealing.

The amount of tax is calculated by determining the taxable value of the dealing and multiplying the result by 29 per cent. (Subclause 5-5(3))

2.2 Exemptions

Proposed Division 7 sets out the circumstances when a dealing with wine is exempt from Wine Tax, even if it is an assessable dealing.

There are three general categories of exemption:

  • If the dealing is a supply that is GST-free (10) (other than child care)
    (Proposed subclause 7-5)
  • If there is a quote in relation to the dealing, and
    (Proposed subclause 7-10)
  • Other specified exemptions.(11)

2.3 Taxable value

Proposed Division 9 contains the rules for working out the taxable value of a dealing.

2.3.1 Assessable Dealings Table

Generally the rules for calculating the taxable value are set out in the Assessable Dealings Table. (Proposed subclause 9-5(1))

In some cases the Assessable Dealings Table will refer to the notional wholesale selling price as the taxable value.

2.3.2 Notional wholesale selling price

Proposed Subdivision 9-B sets out how to work out the notional wholesale selling price.

Essentially there are two methods available to work out the notional wholesale selling price for a retail sale or application to own use connected with a retail sale of grape wine: (Proposed subclauses 9-25, 9-35 and 9-40)

  • Half retail price method, or
  • Average wholesale price method.

The notional wholesale selling price for a taxable dealing that is a retail sale or an application to own use connected with a retail sale of wine that is not grape wine is worked out using the half price method.
(Proposed subclause 9-30)

2.3.3 Additions to taxable value

Under proposed Subdivision 9-C specified amounts are added to taxable value provided that they have not already been included in the taxable value. These are:

  • The value of any container associated with the wine
    (Proposed clause 9-65)
  • The value of any royalty paid or payable in connection with the manufacture, importation, local entry or sale of the wine, and
    (Proposed clause 9-70)
  • The amount of customs duty to which the wine would have been subject if it was for home consumption.
    (Proposed clause 9-75)

3. Quoting

3.1 Purpose of quoting

Proposed Part 3 sets out the rules for quoting for dealings in wine. This is designed to avoid Wine Tax becoming payable on sales preceding the last wholesale sale.

Quoting is an exemption under proposed Division 7 and as such Wine Tax is not payable on a sale for which the purchaser has quoted.

3.2 Form of quoting

Quoting refers to the quotation of an Australian Business Number (ABN) and must be in the approved form and made at or before the time of the dealing. (Proposed clause 13-20)

Quoting is optional. A wine tax credit is available where Wine Tax has been borne by a registered entity that was entitled to quote an ABN, but did not quote or where a quote was not accepted by the entity to whom it was given.

3.3 Standard grounds for quoting

There are four standards grounds for quoting an ABN under proposed subclause 13-5(1). The quoter, who must be registered for the purposes of the GST, must have the intention of dealing with the wine by:

  • Selling the wine by wholesale or indirect marketing sale
  • Selling the wine by any kind of sale if the quoter is mainly a wholesaler
  • Using the wine as a material in manufacture or other treatment or processing, or
  • Making a supply of a wine that is GST-free.

3.4 Periodic quoting

Proposed clause 13-15 allows an entity to provide a single quotation to a supplier for all purchases proposed to be made from that supplier during a period not exceeding twelve months.

4. Wine tax credits

Proposed Part 4 sets out the circumstances when wine tax credits can arise. Generally, wine tax credits prevent Wine Tax applying more than once to the same goods.

4.1 Grounds for claiming wine tax credits

The Wine Tax Credit Table sets out the situations in which a wine tax credit may be claimed. (Proposed clause 17-5)

There are basically five categories under which credits may be claimed:

  • Where Wine Tax has been overpaid
  • To avoid double taxation
  • To provide credits on wine exported
  • To refund customs duty on the destruction of imported wine and a drawback of customs duty on imported wine subsequently exported, and
  • Where the sale price is written off as a bad debt.

Clawback provisions apply on later recovery of bad debts or later sale of defective wine. (Proposed clauses 17-30 and 17-35)

4.2 Two methods of obtaining credits

There are two methods of obtaining a credit:

  • By a reduction in the GST net amount, or
    (Proposed subclause 17-10(1))
  • By applying directly to the Commissioner of Taxation.
    (Proposed subclause 17-10(2))

An entity that is registered or required to be registered for GST can only claim credits by including the amount of the wine tax credit in the reduction of the GST net amount.

For non-registered entities that claim directly from the Commissioner special provisions ensure that:

  • The Commissioner is not required to consider claims for under $200, and
    (Proposed clause 17-15)
  • The Commissioner must apply the wine credit first against any liability outstanding under the Wine Tax law or any other law of which the Commissioner has the administration and then refund any excess to the claimant.
    (Proposed clause 17-20)

5. Payments and refunds of wine tax

Proposed Part 5 sets out the manner in which Wine Tax is to be paid and refunded.

5.1 Inclusion of wine tax and wine tax credits in net amounts

Proposed Division 21 provides that Wine Tax (except Wine Tax on customs dealings) is added to net amounts under the GST law. Wine tax credits are subtracted from the net amount.

5.2 Wine tax on customs dealings

Proposed Division 23 provides that Wine Tax on a customs dealing is not included in net amounts under the GST law. It is paid together with customs duty.

This is consistent with the treatment of GST payable on taxable importations.

Concluding Comments

1. Volumetric -v- Ad valorem

Following the release of the Government's tax reform package and the inevitability of the imposition of an additional tax on wine, debate turned to the nature of the tax to be imposed. Should the tax be a 'value-based' or 'volume-based' tax?

This has been the subject of considerable debate both within the industry and between the WFA and Treasury.

The WFA, while recognising that they represent members with divergent interests, came to the conclusion that it would support an ad valorem tax and reject a volumetric tax. The WFA came to this policy position after commissioning independent research by the Centre for International Economic Studies at the University of Adelaide on the implications of alternative wine tax options being considered in the context of tax reform.

The results of this research clearly showed that a switch from the current ad valorem wine tax to a volumetric tax which raises the same government revenue would harm the industry as a whole and especially the non-premium sector, even though it would help the premium wine producers and consumers.(12)

The Winegrape Growers' Council of Australia Inc. (WGCA) supports the WFA in rejecting a volumetric tax.(13)

The Vineyards Association of Tasmania Inc. (VAT) opposes an ad valorem based wine tax arguing that 'the ad valorem nature of the proposed Wine Tax adversely impacts on the small (less than 500t) regional winery.'(14)

The National Small Wineries Coalition (NSWC) similarly rejects an ad valorem tax and argues for a volumetric tax on the basis that an ad valorem tax increases the price of quality wine and hurts small wineries.(15)

2. Rate - does it reflect revenue neutrality and is it 'locked in' at 29%?

The WFA recommended that the Wine Tax rate be set at a maximum of 24.5 per cent. It concluded that the true Wine Tax level for revenue neutrality would be somewhere between 19.6 per cent and 24.5 per cent.(16)

The rate has been set at 29 per cent.

The WFA also stated that the major influence of taxation reform on the Australian wine industry will be the rate of Wine Tax applied to wine under the package. The level will be critical for the continued viability and competitiveness of the industry.

The WFA continued to state that 'as long as the rate of the Wine Tax is set so that there is no increase in the tax burden on the industry'(17) the industry would accept the additional tax in the short term.

According to the WFA data, it appears that by setting the rate at 29 per cent the tax burden imposed on the industry has increased.

Additionally, there doesn't appear to be anything in the Bill to suggest that the Wine Tax will not be increased above 29 per cent, even though the GST will purportedly be locked-in at the rate of 10 per cent.

3. Wine tax: should it be short term - to be removed in the long term?

Wine Tax is a distinct tax imposed on the wine industry in addition to the GST. The goal, with respect to indirect taxes, was stated to be a system that taxes a broad range of goods and services at a single low rate.(18) Wine Tax will mean, however, that the wine industry will still be subject to a differential tax burden following the introduction of the GST.

The WFA support Wine Tax, but only in the short term, and has stated:

While the Australian wine industry understands that politically it may not be possible to remove these differential taxes immediately, it considers that unless a sound economic rationale for these can be demonstrated (for example, quantifiable evidence of net negative externality effects) then the government should consider reducing then removing such distortionary taxes in the future.

The NSWC, WGCA, VAT and The Victorian Wine Grape Growers' Council Inc.(19) all oppose the introduction of a wine tax, arguing strongly for a GST-only tax on wine, based on the Federal Government's own rationale, namely that any new indirect tax (GST) must be simpler and more equitable than the current WST. A new tax should therefore apply equally across all goods and services. Additional taxes are incompatible with these principles.

4. Exemption for small business for cellar-door sales and promotional activity?

4.1 Cellar-door sales exempt?

The WFA recommended that cellar-door sales for small winery producers should be free from Wine Tax, although they should be subject to the GST.

Apparently the amount of revenue raised from small operators' cellar-door sales is small in aggregate terms but on an individual basis is particularly important to the viability of small wineries.(20)

Traditionally State governments levied a tax of approximately 15 per cent on alcoholic beverages through State business franchise fees. However, cellar-door sales were not subject to these fees. In 1997, following a High Court decision,(21) the State business franchise fees were considered unconstitutional and the Commonwealth government introduced measures to collect the revenue on behalf of the States. (Hence the WST rate on wine increased from 26 per cent to 41 per cent).

The revenue is returned to the States. All States then apply a 15 per cent rebate to wineries for all wine sold through the cellar-door and have indicated that they will continue this practice after the introduction of GST and Wine Tax.(22)

Therefore, as long as the States continue to honour a liquor subsidy scheme to wineries in respect of cellar-door sales the small wineries will generally be in the same position as they are now. (This assumes the rate of 29 per cent does, in fact, reflect a revenue neutral position for the wine industry.) It is unlikely, however, that relying on State based subsidies is the most desirable and least complicated form of effective exemption from Wine Tax.

For small wineries to remain in the current position also assumes that potential distortionary effects of the imposition of an additional tax on the industry over and above the GST will not adversely impact on wine sales. The WFA is of the view that the increased burden from the additional level of tax over the GST is likely to have a serious adverse impact on investment and viability in the small winery sector.

4.2 Promotional activity exempt?

There are some benefits to the wine industry from the introduction of the GST, including the fact that GST will not apply to promotional activity (eg promotions, tastings and samples). Wine Tax will, however, apply to such applications for own use.

Currently, as with cellar-door sales, the States rebate 15 per cent to wineries in respect of wine used in promotional activity. The rebate is intended to continue, however, the WFA remain of the view that promotional activity for all wineries should be exempt from Wine Tax. Such a position would, they believe, be consistent with the spirit of the tax reform package.


  1. Treasurer, Tax Reform: not a new tax - a new tax system; Tax Reform Plan, 13 August 1998, Commonwealth of Australia.

  2. Pay As You Earn.

  3. Prescribed Payments System.

  4. Reportable Payments System.

  5. Pay As You Go.

  6. Senate Select Committee on A New Tax System; Senate Community Affairs References Committee; Senate Employment, Workplace Relations, Small Business and Education References Committee and Senate Environment, Communications, Information Technology and the Arts References Committee.

  7. Senate Select Committee on A New Tax System, First Report, February 1999.

  8. Senate Community Affairs References Committee, The Lucky Country Goes Begging, Report on the GST and a New Tax System, March 1999; Senate Employment, Workplace Relations, Small Business and Education References Committee, Report of the Inquiry into the GST and A New Tax System, March 1999 and Senate Environment, Communications, Information Technology and the Arts References Committee, Inquiry into the GST and a New Tax System, March 1999.

  9. Senate Select Committee on A New Tax System, Winemakers' Federation of Australia Submission at p. 27.

  10. Example: wine that is to be exported or used in a religious service.

  11. If the dealing is a specified customs dealing that is an importation of wine, or if the wine has been previously taxed while in bond. (Proposed subclauses 7-15 and 7-20).

  12. Senate Select Committee on A New Tax System, Winemakers' Federation of Australia Submission No. 938, at pp. 27 to 29.

  13. Senate Select Committee on A New Tax System, Winegrape Growers' Council of Australia Inc., Submission No. 880.

    'WGCA's policy is one of strong support for the current ad valorem system for the wholesale sales tax be maintained for the WET. The alternative, a volumetric tax based on the volume of alcohol in wine, would have a significant negative impact on the industry as a whole, but particularly the three regions of the Riverland, Riverina and Sunraysia because they produce the vast majority of grapes used for wine at the lower end of the market. The three regions also account for over 60% of all winegrape production in Australia and to destroy the economic viability of these regions would have a disastrous impact on the rest of the winegrape growing areas of Australia.'

  14. Senate Select Committee on A New Tax System, Vineyards Association of Tasmania Inc., Submission No. 84, Executive Summary.

  15. Senate Select Committee on A New Tax System, National Small Wineries Coalition, Submission No. 1322, Executive Summary.

  16. Senate Select Committee on A New Tax System, Winemakers' Federation of Australia Submission No. 938, at p. 28.

  17. Ibid. p 18.

  18. Treasurer, Tax Reform: not a new tax - a new tax system; Tax Reform Plan, 13 August 1998, Commonwealth of Australia, at p 77.

  19. Refer to endnotes 13, 14 and 15 and to the Senate Select Committee on A New Tax System, Victorian Wine Grape Growers' Council Inc., Submission No. 1359.

  20. Senate Select Committee on A New Tax System, Winemakers' Federation of Australia Submission No. 938, at p. 39.

  21. Ha and Anor v State of New South Wales and Ors 189 CLR 465.

    Held. By Brennan CJ, McHugh, Gummow and Kirby JJ, Dawson, Toohey and Gaudron JJ dissenting, that the licence fees were duties of excise within section 90 of the Constitution and hence were invalid.

  22. Senate Select Committee on A New Tax System, Winemakers' Federation of Australia Submission No. 938, at p. 38.

Contact Officer and Copyright Details

Lesley Lang
13 April 1999
Bills Digest Service
Information and Research Services

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