(The PDF of this document can be downloaded here)

Western Australia has, in the last fifty years, built an enviable reputation as a word class producer of premium wines. Its unique geography and finely balanced Mediterranean climate has been the foundation of a remarkable industry which has grown over its 180 year history as a major producer and exporter of fine wine.

For our 450 producers our industry should be both highly prized and highly profitable and should be:

- One of our nation's great global industries,

- One of the world's very best wine industries, and

- Riding the wave of global demand for sustainably produced premium products with provenance and authenticity.

But it hasn't realised its full potential despite the tireless efforts of many great individuals. Without doubt, the biggest impediment to the Western Australian wine industry’s future success is the inefficient and archaic federal wine taxation system, which is globally anomalous.

Under the current system, where calculation of tax on wine is based on the value of the wine when ready for sale to consumers (ad valorem), producers are penalised for making and selling high quality/high value wines of provenance and authenticity.

Producers of premium wines are typically located in regional WA and contribute significant economic and social benefits to their communities. And perversely, an ad valorem tax on wine provides incentives to produce wine that is the cheapest form of alcohol available in Australia which contributes to alcohol and health related problems. Taxation on wine should be set to achieve the best outcomes regarding regional economic benefits and alcohol and health related issues.

Wines of WA proposes a new way of taxing wine where:

- The current ad valorem tax on wine is replaced by a volume-based tax (VBT) which is calculated on the volume of wine in the container sold at retail level to the end consumer, using a price/litre of wine formula.

- The VBT should remain within existing wine equalisation tax legislation, retaining the existing WET Rebate and existing eligibility criteria for the rebate.

- The appropriate rate/litre of VBT should be set to achieve the best outcomes regarding regional economic benefits and alcohol and health related issues. The appropriate rate/litre of VBT should be determined through an inclusive consultative process comprised of government, industry and the community, ideally led by Australian Grape and Wine.

Importantly, our proposal is contingent upon no change being made to the eligibility for, or the basis of claiming the WET Rebate, as these have been dealt with comprehensively over the past 3 years following extensive industry consultation. Wines of WA seeks to consult extensively with WA regions and producers to get their overwhelming support for a new way of taxing wine that works for all fine wine producers. The aim of this consultation is to obtain formal ratification by all nine regional associations, supporting the above three principles for reform of taxation on wine in Australia.


(The PDF of this document can be downloaded here)

This is intended to be a practical and non-technical summary of the implications of applying the excise system to the production of wine in Australia by including wine as an excisable good. This analysis has been done in order to highlight the issues that would be encountered by both the wine industry and the Australian Government in any proposal to tax wine under the excise system, in contrast to continuing to tax wine under the Wine Equalisation Tax (WET) system and looking for a simpler method of applying the WET system.

Excise – the basics

The excise regime in Australia is established under the Excise Act 1901 and administered by the Australian Taxation Office (ATO). According to the ATO website, “Excise is a commodity based tax on alcohol, tobacco and fuel and petroleum products. If you produce, store or manufacture these goods in Australia you need to have an excise licence and may need to pay excise duty. They're called 'excisable goods'.”

A manufacturer of excisable goods (in this case, the winery where wine is manufactured) must be licensed, and must only manufacture excisable goods at a licenced premises. The licensing process is handled by the ATO, and would require the ATO to determine that the applicants are fit and proper persons, that they have the necessary skills to carry out the manufacturing activity, that the plant and equipment to be used for manufacturing is suitable, that the security of the manufacturing premises is adequate and that proper records would be kept. Excise licences must be renewed every 3 years. Note that the licence to manufacture does not grant any permission to sell the goods, so wine producers would still need to be licensed under their State based liquor licensing laws.

The extent of the licensed facility will be delineated by a “red line” on a plan of the facility in a similar way to the delineation of licensed premises under liquor licensing laws. The red lined area is known as the “bonded” area and the liability to pay excise on the wine is triggered when the wine is removed from the facility’s bonded area. The ATO can grant permission (known as a “movement permission”) to remove the wine from the bonded area to another bonded area, such as a bonded warehouse or another licensed manufacturing facility, without triggering the payment of excise. This permission can be granted either on a case by case basis or a continuing basis for movement between specified sites.

The Excise Act contemplates that the manufacturer of the excisable goods may not be the owner of the goods. So, it allows for wine to be made under contract. Either the manufacturer or the owner of the wine is responsible for excise being paid upon removal of the wine from the bonded area. However, note the penalties below for movement (without permission) or possession (unless licensed) of goods on which excise has not been paid.

There are limited exceptions to the obligation to pay excise, with the main one being when the wine is to be exported. Note that as soon as wine leaves a bonded area without being covered by a movement permission, excise must be paid even if the wine is later destined for export. It is therefore necessary for all facilities in which wine is intended to be stored prior to payment of excise, or subject to further manufacturing or export, to be licensed by the ATO for the storage of excisable goods. All excisable goods are subject to the control of the Commissioner of Taxation until they are removed in circumstances where excise is paid, or they are exported.

The record keeping and safe keeping obligations are strict. Records must be kept of all wine produced and these will need to account for wine that is discarded, spoiled or lost in the manufacturing process. Since excise is payable in respect of all wine that is removed from the licensed premises, the records will need to demonstrate, on audit, what has happened to all wine that has been produced. Also, as excise is payable based on the amount of alcohol produced, it is assumed that the records would need to identify not only the volume of wine produced but also the alcohol content of that wine.

In general terms, excise must be paid before goods can be removed from a bonded facility. Application can be made to the ATO for permissions to relax this requirement and the ATO generally gives either a 7 day settlement permission or a 30 day settlement permission. These are known as “periodic settlement permissions” (PSPs). As excisable goods are under the control of the Commissioner of Taxation until excise is paid, a bonded warehouse will be penalised if it releases the goods without either evidence of payment of excise or a PSP. If payment of excise is not made within the approved settlement period, the PSP may be revoked and payment will be required prior to removal of the goods from the bonded facility.

The excise system is also much stricter with respect to penalties for failure to comply with the rules, and include:

• Forfeiture to the Crown of excisable goods manufactured by an unlicensed manufacturer;

• Penalties for any person (other than a licensed manufacturer) having possession of manufactured goods on which excise has not been paid;

• Penalties for any person who, without permission, moves any excisable goods on which excise has not been paid; and

• Penalties for any person who sells excisable goods on which excise has not been paid, unless the goods are under bond at the time of sale.

Impact on wine manufacturers

Any producer who makes wine in their own facility will be a manufacturer of excisable goods. In order to avoid penalties, and to defer the payment of excise on wine until the wine is actually sold or exported, the producer will need to hold the following licences and permissions:

• A licence to manufacture excisable goods (wine) at specified premises (note that the licence attaches to both the applicant and the premises) – this will involve a formal application to the ATO that will include:

  • Details of each entity (company, partnership, etc) and individual involved in the management or control of such entities or the premises in relation to which the licence is sought, sufficient to determine that all such persons are fit and proper persons and the skills to carry out the operations that are to be licenced (in practical terms, these are probably the same entities and individuals that require approval for State liquor licensing purposes);

  • detailed winery plans, and equipment lists;

  • details of storage areas and security arrangements for the premises;

  • details of record keeping protocols sufficient to satisfy the ATO that they would be auditable by the ATO.

  • If manufacturing is to take place at more than one premises, or if wine is to be stored at a location other than the manufacturing premises, a separate licence will be required for each premises. Each licence application will need to address storage and security arrangements and record keeping protocols.

• If wine is to be stored at a third-party warehouse, that premises will need to be licenced by the operator of the premises.

• Continuous movement permissions to cover the movement of wine, both bulk and packaged, between the bonded areas of licensed manufacturing facilities or bonded storage areas. These will be very specific as to the premises in respect of which approvals are given.

• If wine is sold to a distributor and the distributor does not have a bonded (licensed) warehouse, then excise will be payable upon the removal of the wine from the producer’s or warehouse operator’s bonded area.

• In order to avoid the need to pay excise before removal of wine from a bonded area, it will be necessary to obtain periodic settlement permission from the ATO to settle on a 7 day or 30 day basis. Monthly PSPs require a return to be lodged and excise paid by the 21st day of each month in respect of the preceding month’s movements. If wine made under contract is being removed from a manufacturing facility by the owner of the wine, the manufacturer will need to be satisfied that either excise is paid before it is released from the facility, or that a PSP or CMP is in place covering the movement of that stock.

Impact on producers without wineries

With the exception of the manufacturing licence, all of the above licences and permissions will be applicable to producers who do not manufacture. The producer will need to ensure that they have licences and permissions in place to receive and store their wine. Impact on warehouse operators It is common for producers to store wine off site at third party warehouses pending sale. Each of these premises will need to be licensed to handle the wine under bond. Each bonded warehouse operator will need to be satisfied by enquiry and receipt of the appropriate paperwork whether the wine they are storing is excise paid or bonded and, if it is bonded, will need to ensure that either excise is paid before it is released from the facility or that a PSP or CMP is in place covering the movement of that stock. Impact on Distributors In the context of beer and spirits, the distributor will generally receive the goods excise paid and the wholesale price of the goods will include the excise paid, so no issue of bonding arises. The issue for wine distributors is that, if the quoting system currently in place for WET is not carried across into the wine excise regime, either the working capital requirements for distributors and producers will rise as the tax on the wine will need to be paid at or soon after the delivery of the wine to the distributor, or the distributors will need to licence their warehouses. Implications for Government The resources that will need to be devoted by the ATO to the licensing and supervision of thousands of wine manufacturers, warehouse operators and non-manufacturing wine producers are considerable. The ATO was reluctant to operate the current WET cellar door rebate scheme because of the administrative burden involved. The administrative burden of adding thousands of additional excise licences, with the associated CMPs and PSPs will be extremely expensive and is likely to far exceed the administration associated with the WET system.