The submissions come after the government specified that it is, “committed to not changing taxation in a ‘wine glut’ and where there is industry reconstruction underway,” in its tax summit discussion paper.
However both wine giants are advocating significant change to the wine tax system, particularly during such a turbulent and unstable time for the industry, laced with oversupply problems.
The wine giants are proposing current taxation to be reformed to a volumetric, revenue-neutral basis and want to see an end to the WET rebate.
The current system taxes wines on a value basis and also provides a WET rebate to all wine producers that totals A$200m a year.
Treasury Wine Estates (TWE), which owns Lindemans and Rosemount brands, said that the WET tax system incentivizes production of low-value wine and has creating the phenomenon of cheap wines, which negatively impacts the industry.
This is because it is based on wholesale value, so low-value wines are marginally taxed compared to premium wines that are taxed a much higher rate, it said.
The company added: “The current tax arrangements particularly the WET rebate and the ad valorem tax system, combine to artificially hold down the price of cheaper wine, disproportionately tax premium product and undermine the structural fundamentals of the industry.”
Calls to abolish WET rebate
TWE wants the WET rebate to be abolished, damning it a damaging subsidiary that is taking profitability out of the wine sector and transferring the benefit to retailers and opportunistic traders.
Pernod Ricard-owned, Premium Wine brands, with its flagship brand Jacob’s Creek, also wants to see the WET rebate abolished or “significantly reformed”.
In its submission to government, the company said that the current wine glut is one of the most serious challenges facing the wine industry and that current tax arrangements are impeding efforts to restructure the wine industry.
It adds that the current tax system distorts market forces that would otherwise operate to address the structural oversupply issues that are threatening the sustainability of Australia’s wine industry.
Proposal for volume-based tax
TWE and Premium Wine Brands both propose a volume-based tax to replace the current value-based wine taxation.
TWE said: “A simple three-tiered tax structure, based on alcohol content by volume, would be most appropriate way to implement this. This would create a direct relationship between tax and alcohol content in wine for the first time.”
It added that the current tax arrangements work against its vision of an economically and environmentally sustainable wine industry that has a reputation for quality.
The company’s chairman and CEO, Jean-Christophe Coutures, said: “Industry efforts to restructure have not succeeded and there is an urgent need for intervention to remove impediments to the restructure process – we believe that this includes the current wine tax arrangements and we would like to work with industry and Government to address this.”