After a two-year industry campaign the Australian Government has agreed to tighten the definition of what constitutes a wine producer and to crackdown on companies making multiple claims under the wine equalisation tax (WET) scheme.
The announcement that the Government will tighten the eligibility for the WET rebate in this year’s Federal Budget will be welcomed by the wine industry.
The Government has indicated that the integrity measure will require an eligible wine producer to have an interest in a winery. While the definition of an interest in a winery will go out to industry consultation, this measure ensures that the WET rebate will be directed to those who have a vested interest in the wine industry, and away from ‘virtual’ wineries.
The WET rebate will be further tightened by restricting it to only packaged and branded wine, eliminating the significant distortions caused by bulk wine transactions being entered into to maximising the participants WET rebate eligibility.
“The limiting of the rebate to only those with an interest in a winery shows that the Government has listened to industry concern that the rebate was being used as a profit making measure as opposed to a support mechanism for the small wine producers”, said Adam Fisher, Partner and Food & Beverage Industry Specialist, Grant Thornton Australia.
While the change will not prevent New Zealand producers using the scheme as many had hoped, they will face the tightened criteria. To exclude New Zealand producers from the scheme would require the abolishment of the WET program.
The WET, introduced in July 2000 to counterbalance the GST, has encouraged bulk production of lower quality wine and placed downward pressure on the price of Australian wine. Using complex business arrangements this has enabled players such as the big supermarkets to sell wine below cost.
“This WET rebate reform is one of many steps in the process of restoring the balance between premium and bulk wines”, said Mr Fisher.
In recent years we have seen more and more initiatives driving the focus towards premium wine production which is much more profitable for the producers for example, the signing of the FTA with China had different tariffs for bottled wine (14 per cent) and bulk wine (20 per cent).
As an added bonus, the Government has committed to providing $50 million over 4 years to the Grape & Wine Research Institute to promote Australian wines overseas and wine tourism, benefiting all participants. This gives potential for small to medium wineries to begin accessing the lucrative export market.
“For a smaller producer to be able to gain exposure to additional markets is an invaluable resource to both strengthen their brand and provide significant growth opportunities. Exposure to these additional markets have previously been limited to multi-nationals and iconic Australian brands”.
However the news was not all good for the small and medium producers with the reduction in the amount of the WET rebate from the current $500,000 to $350,000 effective from 1 July 2017, and to $290,000 from 1 July 2018 will have a negative impact on small to medium wineries who rely on this rebate to keep them competitive against the big wineries.
“I think the impact on cash flow for small to medium wineries and impact on growth is significant and certainly competitive landscape with dominance of multi-nationals is also important” said Mr Fisher.
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