Chilean Winemakers Decry Proposed Tax Hike

Proponents want to decrease drinking, but wineries say their industry is at risk
Jul 8, 2014

Wine has never had more competition—more wineries from more countries than ever before are fighting for market share. And small moves by governments can have a big impact on sales, especially when it comes to lower-priced wines. That explains why Chilean winemakers and grapegrowers are deeply alarmed about a proposed tax hike they believe could put some of them out of business.

Today, wine in Chile is taxed at 15 percent per liter wholesale. That's high compared to other nations in the Organization for Economic Cooperation and Development that includes the much-wealthier major wine countries of Europe and the Americas. If the new tax, part of a much larger tax reform proposed by Chile's new government, is passed, as of September the new rate for all alcoholic beverages would be 18 percent plus 0.5 percent per degree of alcohol, which represents 60 percent more for a wine of 12 percent ABV than the present tax. Considering that in Chile, the average bottle retails at $2.80 after the current tax, the cost increase could be substantial.

Proponents of the beverage tax hikes say the goal is to raise revenue for educational initiatives while discouraging excessive consumption. Winemakers argue hurting their business makes no sense. "Wine has an impressive agenda dedicated to education, training and certifying workers," said Aurelio Montes of Viña Montes and vice president of trade group Wines of Chile.

For example, he argued, wineries supporting sustainability initiatives have been training and certifying students in the countryside with job skills for viticulture careers—45,000 to date, according to Wines of Chile. The tax would siphon money away from these programs.

As for health concerns, Chileans do out-drink their South American counterparts per capita in alcohol, but their wine consumption is lower than other alcoholic beverages and well within the range of what the World Health Organization considers safe. Because of the alcohol percentage surcharge and the fact taxes are already high on liquor, "wine suffers the biggest percentage increase of all beverages [60 percent]," read a statement issued by Wines of Chile.

Winemakers fear the tax would translate into more beer sales and less wine sales. Beer and spirits have already chipped away at wine consumption: Four decades ago, 86 percent of alcohol consumed in Chile was wine, now it's 34 percent.

Chile's small growers face the greatest threat. "Wine is not a simple economic activity. If a small farmer has to pull up his vines because the proposed tax forces him out of the marketplace, it is not the same as a neighborhood shop closing and re-opening as a shoe store," said Montes. "[The tax is] devastating for small producers that sell their grapes or wines for local consumption." While the tax would hit exported wines less directly, wineries fear that without a strong domestic market to bolster sales at the lower end, the industry will be weakened and all will suffer.

The Chilean wine industry in Chile has presented a united front against the tax hike. "Our views are absolutely in line with Wines of Chile. We are working together with them to present our opinion and voice," said Blanca Bustamante, corporate communications manager for Viña Concha y Toro. Members of the industry have met with government representatives and hope they can stop the measure.

Legal and Legislative Issues Taxes Chile News

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