Alcoholic beverage tax to hit suppliers hard
A 10 per cent increase in tax across all alcoholic beverages, combined with a shift to tax wine on a volumetric basis, would result in a decline in total alcohol consumption of 9.4 per cent, according to an IBISWorld senior industry analyst in reference to the 2016-17 pre-budget submission by the Foundation for Alcohol Research and Education.
In line with the next federal budget, to be handed down on May 3 and with the ongoing debate about taxation on alcohol, industry research firm, IBISWorld, compiled an analysis on the current performance of the beer, wine and spirits industries and what a switch to a flat volumetric tax might mean for the sector.
IBISWorld senior analyst, Andrew Ledovskikh, said if such a change were introduced, it would have significant consequences for the alcohol manufacturing sector.
If volumetric taxation is introduced, Ledovskikh said the price of bulk wine, draught beer and unflavoured cider without added alcohol or sugar would increase, assuming that the Wine Equalisation Tax is abolished.
Ledovskikh said the current taxation system for alcohol is very complex. He said IBISWorld found there are currently a range of various tax rates applicable to alcoholic beverages across 16 different excise categories in Australia.
“Beer and spirits are taxed on an excise system, with rates of taxation varying by the type and strength of the product,” said Ledovskikh. “However, all wine, as well as traditional cider, is taxed based on its wholesale value.”
The discussion surrounding changes to the excise tax regime will also be fuelled by the senate inquiry into the winemaking and grape growing industries.
According to IBISWorld’s research, wine production in Australia has struggled over the past five years under persistent oversupply in both the Australian and overseas markets.
“Faced with oversupply and weak prices at home and abroad, many winemakers have struggled to turn a profit. To reduce average fixed costs and maximise their ability to qualify for the controversial Wine Equalisation Tax rebate, winemakers have increased production. This trend has exacerbated existing oversupply problems,” said Ledovskikh.
The current Wine Equalisation Tax (WET) is 29.0 per cent of the wholesale value of wine. Analysts said cheaper wine would incur a lower tax burden by volume despite it having the same alcohol content as it is more expensive counterparts.
If a flat volumetric tax is legislated, IBISWorld anticipates that bulk wine producers will see their profit margins decline as their excise tax burden would increase significantly, with cheap wine being taxed at the same rate as premium wines with similar alcohol content. This could help reduce oversupply issues in the domestic market, and strengthen prices. This could also hurt the profit margins of some mid-range wine producers as their excise tax burden increases.
“Beer manufacturing is currently in a state of flux,” said Ledovskikh. “Craft beer is booming, while traditional beer is declining. The craft segment has increased markedly over the past five years, to account for 8.9 per cent of industry revenue, up from 5.7 per cent in 2010-11.”
Analysts calculated that a can of Carlton Draught or similar (1.4 standard drinks) costs the consumer approximately $0.60 in excise taxes, whereas a pot or middy (1.1 standard drinks) of Carlton Draught would cost approximately $0.35 in excise taxes. However, if consumers choose low-strength beer they will pay approximately $0.05 in excise taxes for a pot or middy.
The Henry Tax Review suggested that a volumetric tax at the current excise tax rate be applicable to full-strength packaged beer. This rate would increase the tax burden of draught beers. Craft beer producers are expected to lose under this system, as smaller breweries rely on draught beer as a higher margin distribution channel that provides much-needed exposure for their products.
Ledovskikh said that although wine producers and beer manufacturers have struggled over the past five years, there are some positive signs for spirit manufacturing.
“There has been strong demand for boutique beverages, such as Tasmanian whiskey, and industry revenue has grown strongly over the period.”
Ledovskikh said spirits would incur the highest rate of excise tax per standard drink.
“The alcopops tax, introduced in 2008, raised the rate of taxation on ready-to-drink (RTD) products to match bottled spirits. A bottle of spirits incurs approximately $22.22 in excise taxes based on 22 standard drinks, whereas an RTD can incur around $1.41 in taxes based on 1.4 standard drinks.”
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