Alcohol Stakeholder Group key messages 2 November 2022

Welcome and introductions

Tony Poulakis welcomed members and advised the minutes from the meeting held on 19 August 2021, have been published on ato.gov.au. One action item remained outstanding (19082021-6-2) and would be covered under agenda item 3.

Reflections of 2021–22 and compliance focus areas for 2022–23

Michael Hughes noted that the impacts of COVID-19 on industry and ATO treatment strategies had continued through 2021–22 and that, at a high level, focus areas would remain the same through 2022–23, with a focus on illicit alcohol activities.

Wine equalisation tax (WET)

The WET system was operating largely as intended, with 2018 amendments appearing to address previous risks. The ATO has recently published an updated WET tax gap estimate for 2019–20 that is 3%, or approximately $31 million, which is consistent with previous years, suggesting a high level of compliance. Michael noted the impact of COVID-19 on ATO fieldwork, limiting onsite audits being carried out, although desk-based activities had been undertaken to target overclaimed rebates/credits. During 2021–22, the ATO continued to work with NZ Inland Revenue regarding WET claimed by NZ producers.

During 2022–23, work will be carried out on WET to ascertain whether any previous non-compliant behaviours are starting to reappear. There will also be a focus on 'new to WET' clients to provide help and education in meeting WET obligations for new entrants.

The ATO will continue its focus on fraudulent behaviours associated with claims in BAS, that have included the WET labels. This is being addressed as part of an enterprise response in the ATO’s Operation Protego.

Alcohol excise and excise equivalent goods (EEG)

The system was largely operating as intended, particularly with legitimate clients. There is, however, a significant tax gap for 2019–20 that represented a slight increase to 9.4%, or just over $600 million. It was noted that the trend had been static over previous years but is an area of concern for the ATO. The illicit alcohol strategy was working to address that; however the results of that strategy may not be materially reflected in a reduction in the tax gap for some years (given it is a lag measure). COVID-19 has impacted audit activity however compliance work and help and education of clients will recommence in 2022–23. Visits would also assist in gaining a better understanding of new businesses entering the system.

There has been a significant increase in new licence applications for excise manufacture following the introduction of the alcohol manufacturer remission (AMR) scheme.

Although overall debt levels have remained steady in 2021–22, work will be carried out across the ATO in 2022–23 to improve debt performance.

Michael advised that more broadly, the ATO’s risk treatments will involve a staged approach of initial help and education for clients when joining the system. For those found to be not complying with tax obligations, a tailored response will then be employed depending on the client’s risk profile. This response may involve nudge campaigns designed to understand reasons for non-compliance and assist clients to get back on track, phone calls for debt and lodgment issues, followed by consequences for high impact cases including changes to periodic settlement permissions (PSP) and movement permissions (MP), or in extreme cases, cancellation of licences and potential prosecution to ensure a level playing field for the market.

The compliance focus for 2022–23 will see the continuation of the 'new to excise' program with initial contact at licence application, then by staged follow ups to check in with clients. The ATO will continue to monitor AMR claims, with clients contacted if they are approaching or exceeding the threshold. Communication activities are also planned, particularly to warehouse operators to ensure appropriate records are being maintained, as well as to concessional spirits suppliers about requirements and a reminder about requirements and restrictions involved in home distillation.

Naomi Schell provided an update on the ATO’s Illicit alcohol strategy. The illicit alcohol risk continues to be a priority and focus for the foreseeable future. The activity was assessed as a key contributor to the alcohol excise tax gap for unpaid excise and customs duty or EEGs. COVID-19 restrictions have impacted the ability to carry out field work, however some audit activity has been carried out, with some success. The identification / intelligence phase of the project has been completed that included information sharing across other federal and state agencies. A range of preventative strategies have been implemented, underpinned by the publishing of a taxpayer alert. For 2022–23, attention will turn to enforcement activities for correction and compliance activities. These aim to correct behaviours and remove the most egregious entities from the supply chain. A variety of products have been sourced across Australia displaying hallmarks of illicit product, including colour, labelling and price. These displayed high levels of denaturants, primarily tertiary butanol, which indicated manufacture from denatured spirit that would be sourced at a duty-free rate and was not intended for human consumption. Further work will be carried out in this area given it is illegal to manufacture alcoholic beverages from these denatured spirits.

An analysis of the supply chain will be carried out with a view to auditing entities illegally producing alcoholic beverages and will also include further communications to retailers. Concessional spirit suppliers will be contacted to obtain purchaser information. A review of approved formulas for denaturing spirit will also be carried out and may result in the issue of a Tax Determination. Industry experts will be consulted.

Claudia Bianco advised that the annual December closedown will take place from midday Friday 23 December to 8.00 am Tuesday 3 January 2023. Communications will issue to the Alcohol Stakeholder Group (ASG) to provide advice of any potential client impacts.

The Consumer Price Index (CPI) is due to be released on 25 January 2023 and indexation will take place from 1 February. Communications will be provided to ASG members and all clients on 25 January.

The Communications team will also be providing support during 2023 in relation to the rollout of the Contemporary Excise Experience (CEE) project and potential deregulation new measures. Claudia reminded ASG members to contact her if they would like any specific communications on ATO messaging drafted to share with their members.

ATO

Technical updates

Sally Fonovic encouraged members to provide feedback on the ASG discussion paper 'Practical guidance for manufacturers of hard seltzers and similar beer, cider or perry products' that has been circulated prior to the meeting. Comments are due 30 November 2022. The paper is seeking industry feedback and views to enable the ATO to draft a Practical Compliance Guideline (PCG) which will provide a framework for industry with clear advice allowing them to self-assess and ensure the ATO will be comfortable with that assessment. The ATO is working with the Australian Border Force (ABF) to ensure product classifications for domestic and imported products remain aligned. Kimberlee Stamatis advised that ABF would await the publication of the final PCG prior to confirming ABF’s position on whether they would also publish corresponding advice on this issue, or just rely on the ATO advice product.

Bennett Sandhu advised the Draft Public Ruling on the definition of ‘Legally and Economically Independent’ is due to publish soon, providing approximately 4 weeks for feedback from industry. The draft will be circulated to ASG members. Bennett advised this will provide a more detailed explanation of updates to Chapter 7 of the Excise Guidelines for the Alcohol Industry that was published in December 2021.

Contemporary excise experience

Nathan Lindemann provided an update on the CEE project, referring to the slide pack distributed in meeting papers. The project will ensure that there is a similar look and feel for online transactions for excise as for other taxes administered by the ATO.

• Phase 1 was deployed in September 2021 resulting in grants schemes being administered in the enterprise system. Relevant to this group are rebates under the International Wine Rebate Scheme (IWRS) for NZ wine producers.
• Phase 2 will move accounting functions from legacy systems into the ATO’s core processing system. The timing of Phase 3, which relates to licences and permissions, is yet to be determined.
• Phase 2 related to excise duty returns, amendments and credit claims. In addition to an improved online experience, other benefits will be lodgment reminders (except for clients lodging weekly) and the ability to enter into payment arrangements online. The online form will provide an AMR cap for clients as well as visibility of the amount claimed for that year and warnings when clients are approaching the threshold. Claim adjustments will also be available. Additional slides provided screenshots of the forms that had been developed.

Tony Poulakis advised that communications would be issued to ASG members and clients as CEE progressed.

Focus topic – Deregulation new measures

Liz Jaspers of Treasury reminded members of the announcement by the previous government in the 2022–23 Budget of a package of measures in relation to excise deregulation. If the current government agrees to proceed with these measures, the Departments of the Treasury and Home Affairs will follow standard processes and consult with stakeholders and industry on the draft legislation. The standard consultation period for draft legislation is approximately 4 weeks. Invitations for submissions will appear in the Departments of the Treasury and Home Affairs websites and will include any key dates and deadlines.

Industry members were referred to the announcement in Budget Paper No. 2 of the 2022–3 Budget and discussed the various options of those measures. Anthony Barnard referred members to the consultation paper released by the Deregulation Taskforce which provided further context to the measures considered by government at the time. It was noted that the implementation date of 1 July 2023 will provide a short period of time for drafting of legislation and implementation.

Industry raised the issue of ad valorem, noting that deregulation benefits could be achieved by decoupling of this tax, and it being triggered at the point of entry into a warehouse. If this were to be implemented, some form of transitional arrangements will be needed.

Consolidation of the dual systems of excise and customs duties onto one return is another issue raised in previous submissions by industry, which would benefit both local manufacturers and importers.

Alignment of excise returns with BAS timing is an important issue for industry to allow less frequent reporting, as well as the implementation of a licensing register for better visibility of entities holding manufacturer and storage licences. Members supported the public register including details of all entities, as opposed to an ‘opt-in’ system.

Treasury noted that other government processes are currently underway that may also impact the industry, for example the Simplified Trade System (STS) being led by Austrade.

Industry noted that the previously proposed implementation date could be an ambitious timeframe and members discussed the potential to opt-in over a period of time. Others noted that running dual systems for any length of time would cause concerns for them. Kimberlee Stamatis questioned whether industry would support a delay to the proposed 1 July 2023 implementation date. Members indicated a need to see the details and draft legislation before deciding.

Members also discussed issues around the timing of excise returns when implementing tariff rate changes for indexation, noting legislative requirements around the timing of indexation following the publication of the CPI.

Action item	02112022-4-1
Due date	20 November 2022
Responsibility	Anthony Barnard
Action item details	The ATO to reiterate what the recent indexation dates were and confirm how the law determines those dates generally.

Information provided post-meeting:

Excise duty rates for fuel and alcohol are indexed twice a year, based on the CPI. subsection 6A(10) of the Excise Tariff Act 1921 defines the 'Indexation Day' to mean the 1 February and 1 August, each year.

However, the first of February and August are supplanted by subsection 6A(5) of the Excise Tariff Act 1921 which legislates that if the statistician, Australian Bureau of Statistics (ABS) has not published the CPI figure at least 5 days before Indexation Day, then it will be pushed back to the fifth date after publication.

So the date indexation occurs is determined by law; the ATO has no discretion to determine a different day.

ABS is responsible for determining and publishing the CPI on or before the last Wednesday of the relevant quarter.

For example, the last 6 indexation dates.

Day of CPI Publication	Date of CPI Publication	Date of CPI Publication + 5 days	Indexation Day
Wednesday	27 July 2022	1 August 2022	Monday 1 August 2022
Tuesday	25 January 2022	30 January 2022	Tuesday 1 February 2022
Wednesday	28 July 2021	2 August 2021	Monday 2 August 2021
Wednesday	27 January 2021	1 February 2021	Monday 1 February 2021
Wednesday	29 July 2020	3 August 2020	Monday 3 August 2020
Wednesday	29 January 2020	3 February 2020	Monday 3 February 2020

Industry updates –roundtable

• Ned Hewitson of Wine Australia noted the increase in innovation with new products including the emergence of zero and low alcohol products, which appear to interact between the WET and alcohol excise regimes.
• Sonja Icanovski of Lion noted the current global economic situation with increasing costs and rising inflation, which impacts on industry, and advocated for a freeze on excise rates.
• Paul Jackson of Asahi Holdings supported the previously announced deregulation measures but cautioned against any potential implementation involving a rushed process.
• Phil McClintock of Good Drinks Australia noted the increasing gap between treatment of WET and alcohol excise products, particularly due to the effect of indexation on duty rates, starting to flow through to shelf prices.
• Karen McCoy of Coca Cola was also supportive of the previously announced deregulation measures, noting that pending timelines for consultation may be ambitious.
• Ashlee-Louise George of Vok Beverages queried the expansion of the Excise Client Manager (ECM) program that was discussed at the previous year’s ASG meeting. Tony Poulakis advised that the program was considering moving to a streamlined version for the next tier of clients and members would be updated as this progressed.
• Victoria Angove of Angove’s was also supportive of the expansion of the ECM program. She noted current inflationary impacts on excise and advocated for a freeze of the excise duty rates.
• Jonathan Chew of Spirits and Cocktails Australia (SCA) supported a freeze on excise duty rates and advised that SCA would be providing comments on the discussion paper about hard seltzers and other similar products.
• Paul McLeay of Australian Distillers Association (ADA) referred to the recent blockchain pilot of the alcohol excise beverage industry and advised of ADA’s advocacy to government to consider ongoing support for that program. Tony Poulakis noted a reference in the STS papers that Singapore was involved in track and trace for products. Kimberlee Stamatis advised members to contact Australian Border Force if they would like further information about the STS.
• Paul Onley of Metcash referred to the illicit alcohol project update and expressed support for information sharing of known illicit products / brands of interest with industry where it could be carried out within privacy requirements. Paul also expressed support for the previously announced deregulation measures noting that an ‘opt in’ transitional phase would prove problematic. Members noted that further discussion depended on confirmation of the new measures and potential timelines for consultation and implementation.
• George Nikolaou of Coles raised the issue of low alcohol products and noted that advice from the ATO about the taxation of low alcoholic wines, particularly under 1.15%, and between 1.15% and 8% alcohol would be welcomed. He also noted issues associated with the difficulty in monitoring suppliers manufacturing and supplying alcohol, particularly given the number of new entrants to the market.
• Con Karatonis of Endeavour Group welcomed the discussion paper about hard seltzers and other similar products. Con was also generally supportive of the previously announced deregulation measures, noting that consultation for Endeavour once the draft legislation was published would involve engagement with client program teams to determine what would be achievable within timeframes proposed.
• Lee McLean of Australian Grape and Wine Incorporated was represented by Victoria Angove, who welcomed clear communication for the membership cohort around WET-related issues. Victoria referred to the loss of the China market and oversupply being experienced and noted that 2022–23 would prove to be a complicated vintage due to flood conditions experienced across the country.
• Warwick Billings of Cider Australia advised that previous confusion between WET and alcohol excise appeared to be diminishing. This may be linked to the recent introduction of the AMR.
• Robert Pelton of Tarac advised that a public register of entities with bonded warehouses, one of the potential deregulation measures, would be very useful and save industry time in confirming these details. Robert opined that as the product was a controlled good, there would not appear to be any privacy issues.

Meeting close

Tony Poulakis thanked members for their continued participation and contributions throughout the year in the ASG. Meeting concluded at 3.30pm.

Attendees

Attendees list

Organisation	Attendees
ATO	Tony Poulakis (Chair), Private Wealth
ATO	Anthony Barnard, Private Wealth
ATO	Bennett Sandhu, Private Wealth
ATO	Brian Geovanovich, Private Wealth
ATO	Caraline Hill, Private Wealth
ATO	Carmen Cubias, Private Wealth
ATO	Claudia Bianco, ATO Corporate
ATO	Joe Limongelli, Private Wealth
ATO	Lyn Nilsson, Private Wealth
ATO	Margaret Whelan, Private Wealth
ATO	Michael Hughes, Private Wealth
ATO	Nathan Lindemann, Private Wealth
ATO	Naomi Schell, Private Wealth
ATO	Paul Macklin, Private Wealth
ATO	Rowena Troth (Secretariat), Private Wealth
ATO	Sally Fonovic, Private Wealth
ATO	Telly Nikolakopoulos, Private Wealth
ATO	Tim Sporne, Office of the Chief Tax Counsel
ATO	Wendee Mundy, Private Wealth
Accolade Wines Australia Limited	Annalisa LoBasso
Aldi Stores	Darren Thomas
Angove's Proprietary Ltd	Victoria Angrove
Asahi Group Holdings	Paul Jackson
Australian Border Force	Jo Schultz
Australian Border Force	Kimberlee Stamatis
Australian Distillers’ Association	Paul McLeay
Australian Grape and Wine Incorporated	Lee McLean
Brewers Association of Australia	John Preston
Brown-Forman Australia Pty Ltd	Jorge Jiminez
Campari Australia Pty Ltd	Ruth Golden
Cider Australia	Warwick Billings
Coca-Cola Amatil	Karen McCoy
Coles Financial Services	George Nikolaou
Coopers Brewery	Brad Grunert
Diageo Australia Ltd	Tomomi Yamada
Endeavour Group Limited	Con Karatonis
Good Drinks Australia Ltd	Phil McClintock
Lion	Sonja Icanovski
Metcash	Paul Onley
Pernod Ricard	Stuart Wood
Samuel Smith and Son	Bob Smart
Spirits and Cocktails Australia	Jonathan Chew
Tarac Australia Pty Ltd	Robert Pelton
Treasury	Liz Jaspers
Treasury	Timothy Woltmann
Treasury	Toby Silcock
Treasury	Tracy Richards
Treasury Wine Estates	Catherine Dishon
Vok Beverages	Ashlee Louise George
Wine Australia	Ned Hewitson

Apologies

Apologies list

Organisation	Members
Independent Brewers Association	Kylie Lethbridge
Manildra Group	Debbie Forster
Taylor Ferguson Pty Ltd	Frank Ciampa
The Drinks Association	Georgia Lennon
Wilmar BioEthanol	Trevor Barr

Summary or the key topics discussed at the Alcohol Stakeholder Group meeting 2 November 2022.