Excise relief for Australian BEER

Treating small winemakers and microbrewers equally

Background

The Government announced in its 04/05 Budget that all wine producers would become entitled to a rebate equal to the WET liability on the first $1m worth of sales subject to WET, (or $290,000 of WET) and payable by the producer. The rebate will effectively result in 90% of Australian wineries not having a WET burden [1].

The rebate has been introduced as a direct result of lobbying from the Winemakers’ Federation of Australia (WFA), in the interests of supporting rural and regional wine operators, their communities and supporting industries such as growers, tourist operators, etc.

The rebate extends to the entire industry, however, the rebate is payable only to a producer, and where that producer is part of a group of companies, the $290,000 capped rebate will only be payable once to the group.

The issue of whether the rebate is a tax concession or subsidy has not been resolved, and it is possible that the Government may have to extend the same concession to wine imported from New Zealand, and possibly all other WTO member states.

As part of the New Tax System, micro-brewers (as defined by a production size of less than 30,000 litres per annum) were given an excise break through a refund of excise up to a maximum of $10,000 per annum. The move was to restore some price competitiveness with larger brewers after the loss of a “small business” sales tax exemption that disappeared with the end of the wholesale sales tax regime [2].

Equivalence in brewing

Translation of the principles and administration of the proposed concession into the brewing industry in a pure sense would mean:

The creation of a production threshold, where effective excise rates were “nil” for brewers and the first $1m worth of beer they sell each financial year (or $290,000 of excise they pay);
The threshold would apply to all brewers at the individual brewery level, or where a group entity operated several breweries, the threshold applies to all beer produced within the group;
Microbrewers who sell less than 30,000 litres per annum may be able to reduce their effective excise rate to zero for a greater volume of sales. Although the suggested means of achieving this would see the term “microbrewer” becoming redundant for excise purposes.

Issues to resolve in equivalence

Given the fundamental difference in taxation between beer and wine i.e. volume based versus value based, there may need to be a conversion from $1m of sales to a volume based equivalent in setting the production threshold.

The second issue is the “mechanism”. The current methods of beer taxation (and rebates) are administered in the Excise Tariff Act, Excise Act and Excise Regulations, whereas wine tax is administered through the WET.

The Taxation Laws Amendment (Wine Producer Rebate and other Measures) Act was passed by Parliament on August 30th and was signed into law on August 31st 2004 – the same day Parliament was prorogued for the election. The bill before Parliament was a general Tax Law Amending Bill and there is no reason why a new Schedule could not be inserted into this law on a future occasion containing proposed amendments to the relevant excise law.

However, this may be unnecessary as a “rebate” for beer already exists in the Excise Regulations, for the purposes of meeting the Government’s decision to protect price competitiveness for micro-brewers [3].

The Excise Act has fully delegated all excise duty rebate, refund and remission circumstances and administration to the Excise Regulations [4].

Significantly, Statutory Rules such as the Excise Regulations are amended by Executive Council (EXCO), and not by the Parliamentary process. EXCO comprises two relevant Government Ministers (e.g. the Treasurer, Assistant Treasurer, Minister for Industry, etc) and the Governor-General. The necessary amendment to the Excise Regulations will need Prime Ministerial approval to proceed to EXCO, and the amending Statutory Rule would be tabled in the Senate for review.

How to create a WET Rebate equivalent system in the excise system for beer

To create an industry wide rebate such as that applying to wine, the following amendments would be required to the Excise Regulations:

Regulation 2AB – repeal;
Sub-paragraph 50(1)(k) and 50(1)(zzd) – repeal and replace with
“excise duty has been paid on beer manufactured in a licenced premise during a financial year, and the amount of refund during the financial year does not exceed $290,000, or where beer is manufactured in a licenced premise after the start of the financial year an amount not exceeding $290,000 multiplied by the number of days of being licenced, divided by 365”;
Or to ensure the threshold keeps pace with the indexation of excise rates
“excise duty has been paid on beer manufactured in a licenced premise during a financial year, and the amount of refund during the financial year does not exceed the excise duty payable on 250,000 litres of beer [4], or where beer is manufactured in a licenced premise after the start of the financial year an amount of excise duty not exceeding the excise duty payable on 250,000 litres of beer multiplied by the number of days of being licenced, divided by 365” [5].