For some, it tastes like “alcoholic lemonade”. For others, it’s “a slightly sour beer”.
Important points:
- Seltzer is made in many different ways for tax reasons
- Beer selters cost less in taxes than selters made with spirits like vodka
- There are renewed calls for a reform of the alcohol tax system
Likewise, for tax reasons, the latest fashion drink consumed by Australian players can be modified to taste.
Seltzer is a big trend in the US, where brands like the popular White Claw are made with distilled alcohol, carbonated water, and a little fruity flavor.
Ever since companies saw the trend in Australia 18 months ago, selters have been marketed to consumers as a healthier, low-calorie, alcohol-based option.
It’s a major growth category for food giants like Woolworths today.
While its origins lie as a liquor beverage, many craft brewers in Australia and even supermarket giant Aldi go through an intricate process to make seltzer as beer.
Beer has a lower tax rate than liquor.
The bizarre situation of having a drink made and taxed in different ways underscores the intricate and controversial intricacies of Australia’s Alcohol Excise Act.
And some want seltzer gaps to be closed.
What is Seltzer anyway?
The alcohol giant Diageo makes its seltzer on a vodka basis.
“It’s very similar to vodka and soda with a dash of lime,” Angus McPherson, managing director of Diageo Australia, told ABC News.
That sees its seltzer classified as alcohol-based “ready-to-drink” or RTD.
RTDs became known for the “alcopop” tax more than a decade ago, as they were associated with easy-to-drink sugary beverages and excess alcohol in teenagers.
The tax on them is the same as on distilled spirits and the highest of all alcohol.
Diageo Australia CEO Angus McPherson is concerned that the alcohol tax rate is creating an unfair playing field. (
ABC News: John Gunn
)
The tax is calculated based on the alcohol content of the beverages and is $ 87.68 per liter of alcohol. For a standard 250 ml glass of 4.5 percent alcohol seltzer, this equates to a tax of $ 0.99.
The most famous seltzer imported into the Australian market, White Claw, is made overseas with triple distilled spirits.
White Claw’s importer Lion Nathan confirmed to ABC News that this was being taxed as an FTE.
However, Lion Nathan also confirmed that he had made another seltzer called Quincy, which “was classified as beer for excise purposes.”
Medium strength beer receives a much lower tax rate than spirits at $ 51.77 per liter of alcohol. There is also a 1.15 percent margin for alcohol that is not taxed.
That equates to a tax of only $ 0.43 per 250 ml of 4.5% alcohol seltzer.
At half the tax than a liquor-based beverage, the incentive for companies to make a seltzer that is classified as beer is evident.
However, passing the pub test at the Australian Tax Office is tricky.
How do you make seltzer as beer for tax purposes?
Australian tax law doesn’t make it easy.
Beer is usually made from grain or grain, it is fermented with yeast, it has hops for bitterness, and it is usually lower in alcohol than wine or spirits.
The Excise Tax Tariff Act of 1921 summarizes this with a number of legal jargon under the definition of “beer”.
Some of its minor complications are that beer cannot be considered beer if it contains artificial sweeteners and that it must have an International Bitterness Unit (IBU) of 4.0 or higher. (More on IBU later.)
Sauce Brewing in Sydney is one of many craft breweries that make selters that are classified as beer for tax reasons.
Sauce Brewing is one of many Australian beer companies that make seltzer. (
ABC News: Daniel Irvine
)
Its founder Mike Clarke is open to the process and has ticked it off with the ATO before proceeding to make sure it adheres to the legal definition of a beer.
“The long and short of it is that the excise duty is lower,” he said.
“We have to do a few things to meet the requirements.
“First, the (sugar) has to come from a grain or a grain spirit. So in our case we are using rice to make the sugar. “
Using rice as a base creates a more tasteless alcohol to match the seltzer profile and is the method most Australian brewers use when making seltzer.
There is also the problem of the IBU. An IBU of 4.0 is actually a very small amount of hops, so Sauce Brewing just adds a “spritz” to their seltzer to make it meet the law.
“We just add a tiny bit of hops or hops extract to give it the bitterness without affecting other flavors or colors,” said Clarke.
“And after all, we just have to brew it so we can put it in a fermenter and give it time.
“The alternative is an RTD. You would just buy alcohol, mix it with water and flavorings, and it will be done in less than a day.”
Mr Clarke said his company’s selters are a healthier alternative to regular premixed beverages and he does not consider them to be RTD.
Sauce brewing goes through an intricate process to make seltzer as beer for tax purposes. (
ABC News: Daniel Irvine
)
As a passionate craft brewer, he is also aware that this is not a typical beer either.
“Seltzer doesn’t taste like a beer at all,” he said.
“We didn’t find any gaps.
“It’s a new category of beverages, and until something exists for it to be classified as seltzer in the excise regime, it has to be classified as something.”
It’s not just craft brewers who make selters as beer.
The German supermarket Aldi confirmed to ABC News that the seltzer sold in the summer was taxed as beer. It sold for just $ 10 for a four-pack or just $ 2.50 for a pop.
Rivals Coles and Woolworths also make selters under various trademarks in-house, but none would disclose how they’re taxed.
What about Weinseltzers?
The New Zealand company Villa Maria sells a so-called “wine seltzer” in Australian bottle shops.
However, Villa Maria would not confirm how their 4.8 percent alcoholic seltzer is taxed.
“As this information is commercially sensitive, we cannot comment,” said a spokesman for the Australian branch.
It is possible for it to be taxed in different ways, depending on its alcohol content and what is added to the final product.
Wine gets a very different tax system based on wholesale value. Whatever it is sold to a retailer (other than the final retail price) is taxed at 29 percent.
The tax system for wine is called “WET – the wine equalization tax – and has long been controversial as wine producers can pay different taxes depending on how cheaply they sell it.
Wine producers also get a higher tax break of $ 350,000 per fiscal year compared to beer and liquor producers who only get up to $ 100,000.
Both Diageo and Sauce Brewing are concerned about the potential for wine-based seltzer to hit the market and compete at a lower tax rate.
Mike Clarke of Sauce Brewing is also upset that beer has to have more complicated tax laws than other categories.
There are many different ways to tax beer depending on how strong it is and whether it is served in a barrel or a bottle.
“You pretty much need a masters degree in math to do your excise duty every month,” quipped Mr. Clarke.
“(The tax code for alcohol) is terribly complex. There are all sorts of things that don’t achieve the goals they want to achieve. “
Why is the alcohol tax like this?
The Australian alcohol tax system not only causes more headaches than a hangover for accountants.
It also affects how much consumers pay for alcohol and how much alcohol they consume.
The Foundation for Alcohol Research and Education (FARE) has long been campaigning for a revision of the tax system in order to keep alcohol-related harm to the population as low as possible.
Caterina Giorgi, managing director of FARE, said the topic of seltzer was the latest trend highlighting the problems with alcohol tax legislation.
She fears that selters may be tempting to younger drinkers because of their accessible taste and that they should therefore all be taxed as FTE under the alcopop tax.
“I’m not at all surprised that these alcohol companies are taking advantage of these loopholes to develop products that have lower tax rates,” she said.
“This really points to the flaws in the alcohol tax system, where there are so many different tax rates and so many different outcomes based on really strong lobbying.”
On the other hand, Diageo Australia’s Angus McPherson would like the spirits and FTE tax rate to be lowered to the brandy rate.
Brandy is taxed lower than spirits (a whole different story), but still significantly higher than the tax rate on beer.
“A standard alcoholic beverage is a standard alcoholic beverage, whether it is made from wine, beer, or spirits,” said McPherson.
More than a decade ago, a Commonwealth survey of the Australian tax system, commonly known as the Henry Tax Review, recommended that the system be overhauled and a “volumetric tax on alcohol” applied.
Then all alcohol would be taxed on the basis of its alcoholic strength. So if a six-pack of beer and a bottle of wine had the same alcohol content, they would pay the same tax rate.
“The rate should be based on evidence of the net social cost,” noted the Henry Tax Review.
“In addition, removing the distinction between different manufacturing processes would reduce compliance and administrative costs of the existing excise system.”
These recommendations are still inactive.
The ATO told ABC that companies can make seltzer at will as long as they follow the rules, and that reform is a Treasury Department’s responsibility.