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Slide 1
Fundamentals ofExcise Taxation
Master ClassAlcohol Products
Mr Warwick RyanTax Counsel,
Distilled Spirits Industry Council of Australia(DSICA)
Seventh Asia Tax ForumExcise Taxation Master Class
20 October 2010, Siem Reap
Slide 2
Presentation outline
• Alcohol taxation definitions• Alcohol taxation structures and the traffic light
system• An ideal alcohol tax system• Asia Pacific region – spirits taxation• The Singapore system• The Indonesian system
– Domestic product reforms– Imported product reforms
• The Australian system – spirits taxation• The Henry Review – alcohol taxation
recommendations
Slide 3
Alcohol taxation definitions
• Ad valorem rate– A tax rate expressed as percentage of the value of the product.
For imported products, this can include the cost of goods,insurance and freight (CIF) + customs duty paid
– The taxing point can be on importation, on ex-factory price, onlast wholesale sale or on retail sale
• Unitary rate– A variation of the specific tax approach, except the tax rate is
expressed in terms of a fixed amount for a given quantity ofproduct irrespective of alcohol strength ($ / liquid litre or $ /container)
• Specific rate– An alcohol tax rate expressed on the quantity of alcohol– Usually calculated on a per Litre of Pure Alcohol basis
• LPA = Litre of Pure Alcohol
Slide 4
Alcohol taxation structuresand the traffic light system
• A traffic light system has been developed toallow clarity of analysis of tax structures.This will be applied in the following slides
• STOP (least preferred)– Ad valorem tax – taxes the value of the
product• UNITARY
– Unitary tax – taxes the quantity of fluid on aper litre basis
• GO (most preferred)– Specific tax – a tax rate expressed on a per
litre of pure alcohol (LPA) basis where allproducts of the same alcohol strength aresubject to the same tax burden, regardlessof value
Slide 5
Alcohol taxation structuresand the traffic light system
• Some countriesuse a combinedsystem, forexample:
• Some countriesuse an either/orsystem, forexample:
AND
OR
Slide 6
Malaysia
50%
100%
150%
Excise
MYR58 per L
Indonesia
ExciseCustoms
125,000IDR per L
Local Imported
IDR75,000per L
or
VAT
10%
Ad
valo
rem
rate
Customs
MYR 30per L+
IDR130,000
per L
15%
Different tax structures and rates across Asia-Pacific can be readily discerned
Thailand
ExciseCustoms
Municipaltax & Healthand publictv tax
VAT
60%
50% headline= 111% effect.
400 THBper LPA
7%
or
10% munic tax
2% (healthtax) + 1.5%(public tvtax)
Local
300 THBPer LPA
or
Philippines
Excise
Customs
15%
146 Pesosper LPA
250 Pesos
294 Pesosper LPA 588 Pesos
per LPA
or
VAT
10%
or
675 Pesos
14 Pesos perLPA
Local
Australia
ExciseCustoms
5%
AUD70per LPA
GST
10%
Singapore
Excise
SGD70per LPA
VAT
5%
Customs
0%
This does not cover all dark spirits tax rates possibleapplying in each country
Cambodia
Excise VAT
10%10% 3%
Tax forpubliclighting
35%
Customs
Whisky: tax structurelandscape
Slide 7
Ad valorem and combined/mixed tax systems are more prevalent in Asia-Pacific
OECD-10 countries selected in Warburton &Henry International tax review as comparableOECD countries for Australian tax reformcomparisons
The Human Development Index (HDI) iscalculated by the UN Development Programmeas a frame of reference for both social andeconomic development. Seehttp://hdr.undp.org
International comparison ofalcohol tax
Slide 8
Asia Pacific region –spirits taxation
Sim
ple
Mixed system Single systemType of tax
Com
plex
AND
Spirits
The traffic light system can be used to compare spirits taxationstructures across the Asia Pacific region
OR
Slide 9
An ideal alcohol tax system
• The Henry Review sets the benchmark foran ideal taxation system comprising thefollowing features:– Single volumetric rate of tax all
alcohol products should be taxedon a volumetric basis
• I.e. taxing the alcohol content only,not a value-based tax
Slide 10
An ideal alcohol tax system (2)
– The single rate shouldapply to all products
• One taxation system shouldapply to all alcoholbeverages and avoiddiscrimination on the basis ofingredients, method ofmanufacture and country oforigin
Local Import
Slide 11
An ideal alcohol tax system (3)
– Low excise-freethreshold applying toall products
• Encouragesconsumption of low-alcohol products
Excise Free (e.g. 1.15%)
Excise Paid(e.g. on 3.85%)
No tax paid
Slide 12
An ideal alcohol tax system (3)
– Rate subject to indexation• Ensures the tax base retains its value over time
and in line with inflation
0
10
20
30
40
50
60
70
80
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
Sp
irit
s E
xcis
e R
ate
($A
UD
)
Spirits excise rate
Inflation rate
Slide 13
An ideal alcohol tax system (4)
– Rate of taxation based on the net marginalspillover costs (i.e. externalities) of alcoholconsumption
• This is a long-term target to be discussed atanother time
Slide 14
Asia Pacific region –spirits taxation
Sim
ple
Mixed system Single systemType of tax
Com
plex
AND
Spirits
The Henry Review principles can be used to benchmark differentspirits taxation structures across the Asia Pacific Region
OR
Slide 15
The Singapore system
• The Singapore system provides an example of analcohol taxation system based on specific taxes only
Category Customs duty(SGD/LPA)
Excise duty(SGD/LPA)
Spirits 0 70
Wine 0 70
Cider and perry 0 48
Beer, stout and ale 16 48All alcohol productsare subject to aspecific tax based onalcohol content (LPA)
Slide 16
The Indonesian system
• Recent Indonesian reforms simplified thealcohol taxation system– On 1 April 2010 the Indonesian Government
reduced the number of excise rates fromfive to three, creating greater simplicity andminimising administrative burdens
– This tiered banding system provides a bestpractice example of a transition method thatcan be used as a step towards theintroduction of a single specific rate
Slide 17
The Indonesian system –domestic product reforms
Five unitary rates(A1, A2, B1, B2
and C)
Three unitary rates(A, B and C)
Category
Excise structurePre- 1 April 2010 Current excise structure
Excise(IDR/L)
LST (% ofexcisable
value)
Excise(IDR/L)
LST (% ofexcisable
value*)
C: > 20° 25,000 75% 75,000 0
B2: 15° < abv ≤ 20° 10,00040% 30,000 0
B1: 5° < abv ≤ 15° 5,000
A2: 1° < abv ≤ 5° 3,50040% 11,000 0
A1: Up to 1° abv 2,500
Ad valorem LSTcomponentabolished
Slide 18
The Indonesian system –imported product reforms
Category
Excise structurePre- 1 April 2010 Current excise structure
Excise(IDR/L)
LST (% ofexcisable
value)
Excise(IDR/L)
LST (% ofexcisable
value*)
C: > 20° 50,000 75% 130,000 0
B2: 15° < abv ≤ 20° 30,00040% 40,000 0
B1: 5° < abv ≤ 15° 20,000
A2: 1° < abv ≤ 5° 5,00040% 11,000 0
A1: Up to 1° abv 2,500
Five unitary rates(A1, A2, B1, B2
and C)
Three unitary rates(A, B and C)
Ad valorem LSTcomponentabolished
Slide 20
The Australian system –spirit product taxation
Category Excise duty (AUD/LPA)
Brandy 66.92
Other excisable beverages (>10°abv) 71.67
Lower exciserate for brandy
Higher excise ratefor all other spirits
above 10°abv
Slide 21
Asia Pacific region –spirits taxation
Sim
ple
Mixed system Single systemType of tax
Com
plex
AND
Spirits
The Indonesian, Singapore and Australian spirits taxation systemscan be compared to those across the Asia Pacific region
OR
Slide 22
The Henry Review – alcoholtaxation recommendations
• The Henry Review undertook a comprehensive analysis of the Australianalcohol tax system and provided two significant recommendations for thelong-term reform of alcohol taxation in Australia
Arc
hite
ctur
eco
mpo
nent
Com
plia
nce
com
pone
nt
• The analysis within the Henry Review report falls into two categories:– Discussion of an economically ideal destination tax system; and– Discussion around the reform journey to reach the destination tax system
Slide 23
Asia Pacific region –spirits taxation
Sim
ple
Mixed system Single systemType of tax
Com
plex
AND
Spirits
The traffic light system can be used to compare spirits taxationstructures across the Asia Pacific region
OR