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  • Wine equalisation tax

    The wine equalisation tax (WET) was introduced in 2000 to replace the previous wholesale sales tax on wine. ‘Wine’ for the purposes of WET is defined as grape wine, grape wine products, fruit or vegetable wine, cider, perry, mead and sake.

    The WET scheme includes both a tax payable and a WET producer rebate. The WET producer rebate is paid to domestic wine producers as a rebate on WET paid on domestic sales and is capped at $500,000 per producer per year.

    WET payable is calculated at 29% of the wholesale or imported value of wine consumed in Australia. It applies on top of GST and is generally applied at the last wholesale sale point. WET does not apply to wine exported from Australia. WET is administered by both the ATO and Department of Immigration and Border Protection.

    Behaviours contributing to the WET payable gap are under-reporting of production, sales and sampling, claiming that domestically consumed wine was exported and undeclared imports.


    The WET gap is the difference between the estimated amount of WET payable according to the law (theoretical WET payable) and actual WET payable (as represented on the BAS) for a defined period, typically a financial year.

    We define 'net WET payable' used here as WET payable minus WET refundable (net of the WET rebate).

    The gap estimate does not include the WET producer rebate.

    We adopt a top-down methodology to estimate the tax gap, using ATO and external data, such as:

    • ABS data on domestic sales and imports of wine
    • ABS data on shipments by Australian winemakers and importers
    • ABS Consumer Price Index and National Accounts data
    • IBISWorld and industry reports.

    We assume that:

    • a certain wholesale mark-up and split of wine sold by domestic versus non–domestic producers applies equally to wholesalers, retailers and direct consumer sales
    • the average costs of insurance and transport for imported wine totals 5% of the customs value
    • the cost structure for wine producers, identified in the 2008 Winemakers Federation of Australia submission, applies
    • 60% of cider and mead sales are subject to WET
    • certain levels of WET rebate are payable
    • rebate claimants claim the maximum theoretical rebate applicable, and this is identifiable through relevant business activity statements.

    The theoretical total WET payable is calculated by applying the WET rate of 29% to the estimated total assessable wine dealings in Australia. We estimate the theoretical WET payable liability in three areas and then combine them to obtain the theoretical total WET payable liability limit.

    To calculate theoretical WET payable, we:

    1. Determine the value of wine sold in Australia by domestic wine makers using ABS wine industry data. This excludes WET-free activities, such as manufacturing, and splits the remaining value of domestic wine sales between wholesale, retail and direct-to-customer sales channels. An appropriate mark-up is applied to each of the sales channels to estimate taxable values. The WET payable rate is then applied to each of the sales channels to obtain the theoretical total WET payable liability for Australian produced wine.
    2. Determine the value of products other than wine produced and sold in Australia using reports prepared by the Distilled Spirits Industry Council of Australia. The value is scaled down to the wholesale value by removing an appropriate retail mark-up. The WET payable rate is applied to estimate the theoretical total WET payable liability for Australian produced products other than wine.
    3. Determine the value of wine imported for domestic consumption. The total customs value of wine imported for domestic consumption. This excludes the value of direct to consumer imports of wine where WET is collected by the Department of Immigration and Border Protection. Adjust the value for customs duty, transport and insurance then apply the WET payable rate. Add the WET payable amounts on direct to consumer imports of wine. This provides the theoretical total WET payable liability for imports of wine.

    The combination of these three steps yields the theoretical total WET payable liability limit.

    We subtract the actual WET payable reported prior to ATO compliance activities and WET payable liabilities that are irrecoverable at law or not economical to pursue from the theoretical total WET liability to estimate the gross gap.

    The net tax gap is obtained by subtracting the WET payable amounts raised from ATO compliance activities from the gross gap figure.


    The WET payable gap estimates are sensitive to the average wholesale mark-up rate used and the split of wine sold by domestic producers to either wholesalers, retailers or direct to the consumer.

    The estimate is partly based on a 2008 submission on the cost structure of a $15 bottle of wine. This research suggested a 32.5% mark-up at this price point at that time. However, preliminary analysis suggests that a large proportion of domestic sales are at price points below $15 per bottle, which may well attract lower mark-ups.

    All key data sources have their limitations. ABS Series 1329 does not extend beyond 2012–13 and ABS Series 8504 extends to only June 2014. The substituted IBISWorld data is likely to be less reliable and suffers from more coverage and response quality issues. As ABS Series 8504 uses Department of Immigration and Border Protection data for imported wine, it cannot be used to identify any tax gap arising from imported wine.

    We have not estimated non-compliance for the WET producer rebate as there is no suitable externally-provided aggregated data to estimate the value of incorrect or fraudulent WET producer rebate claims. We undertake random enquiries to estimate the value of incorrect or fraudulent producer rebate claims.

    We have not produced a confidence interval for the estimate of the WET payable gap. Each of the assumptions used in the top-down model has its own errors, many of which are unquantifiable.

    Reliability assessment

    The WET gap estimates are assessed to be of low reliability. The discontinuation of the ABS data and its necessary replacement with less robust data is the prime driver of this rating.

    Future directions

    We will produce a WET gap estimate that includes the producer rebate based on the results of a random enquiry program.

      Last modified: 21 Sep 2020QC 50394