Australian wine producers are calling on the federal government to overhaul the wine equalisation tax (WET) in a bid to prevent unbranded labels and individuals from exploiting generous tax rebates.
When it was introduced in 2004, the tax rebate was originally designed to support small wineries and those in regional areas.
However, the government now admits the system is open to abuse by individuals who don’t even operate a cellar door.
In an opinion piece for Fairfax this morning, assistant treasurer Josh Frydenberg said the amount claimed under the rebate has increased by more the 60% in recent years and the government is aware of “numerous example of contrived arrangements” being used to claim the rebate.
Wine producers can claim up to $500,000 through the rebate, which cost taxpayers $300 million last financial year.
But in a discussion paper released today, the federal Treasury outlines several ways individuals and businesses can manipulate the system to get access to the payments.
These include a practice called “virtual wine production processes”, in which an entity does not own a vineyard, plant or equipment or operate a cellar door but still manages to claim the rebate.
Frydenberg said the system clearly needs to be redesigned.
“The ATO is already on the case and is handing out significant penalties for breaches of the law, but there are still significant structural and legal issues that need to be addressed,” Frydenberg said.
“Leading industry groups like the Australian Winemakers Federation have identified these concerns and the government is now working with them and other key stakeholders to plan a reform path for the rebate.”
“It is hoped, in the end, a pragmatic and workable solution can be found which will preserve the integrity of our tax system and strengthen Australia’s world-leading wine industry.”
Victoria Angove, director of Angove Family Winemakers in Adelaide, told SmartCompany she has never seen the wine industry so united on a particular issue.
“We really welcome the paper because the urgency for change is very, very real,” Angove says.
“We have watched the WET rebate not being used as it was intended. The intention of it was always to support local and regional wine businesses and we are seeing it isn’t quite being used for that.”
Angove says the Australian Winemakers Federation would like to see the tax rebate overhauled so it fulfils its original purpose.
The industry association is asking the government to remove the eligibility of bulk, unpackaged, unbranded and private labels of wine over four years.
“Tidying up the WET rebate area could be used to promote export demand and it’ll be good for the overall economy,” Angove says.
“We need to grow the export demand in key markets, particularly in the US, China and the UK.”