History of Wine and Taxation

History of Wine and Taxation

The factors that affect the production of wine vary from one country to the other. However, common denominators include the terroir, the growing practice, and the wine-making practice. All of these contribute to the quality of the wine and the cost. One additional overlooked factor that influences the price of alcoholic beverages is taxation.

Have you ever wondered if the cost fluctuates with prevailing economic conditions? How does the price of wine and other alcoholic beverages increase when there are tax cuts and the price surges with inflation? This is not specific to any region as different governments and countries determine the tax rates on wine.

This explains why different states in the United States also pay varying wine and tax rates. In 2021, Kentucky ranked highest on the list of states with wine tax rates at US$3.23 per gallon. With $2.50 per gallon, Alaska came in second, while Texas and the state of California ranked lowest with $0.20 per gallon.

Globally, Finland, Ireland, and the United Kingdom occupied the first, second, and third positions on the list of countries with the highest alcohol excise tax in Europe as of 2019. Because every country has a unique taxation history, the logical way to understand the history of wine and taxation is to comb through records of individual countries’ taxation history.

Wine taxation as a means of funding wars

While excise taxes are often placed on alcohol to curb alcohol-related accidents in most countries, the proceedings were used to fund government debts during the revolutionary war. Wine taxation first surfaced in 1791 to finance the revolutionary war. After the war, it was removed, only to be temporarily returned to finance the war in 1812. ^[1]

These taxes were extended to include carbonated drinks and wine before the start of world war 1. The intention of wine taxation is evident and reflected in the noticeable increase in tax during war times and when government revenue is low. In the early years, wine excise contributes a large chunk of government revenue.

Wine taxation as a deterrent to excessive  wine consumption

In the United States and other countries, wine excise is considered a sin tax. They are so named because, unlike a general tax, a tax on alcoholic beverages is intended to discourage excessive consumption of alcohol and reduce the financial burden of any side effects.

What is the Impact of wine taxation on consumers and society?

As we have seen earlier, excise is levied on wine and other alcoholic beverages for different reasons, which differ from government to government. While some use the proceeds to boost their budget and fund government needs like settling debts and funding wars, others use it as a corrective measure to curb the abuse of alcoholic beverages such as alcoholism and staff absenteeism.

Another reason wine taxation is and will most likely remain in existence is that governments also use them to reduce the pressure on healthcare facilities while mitigating and reducing the chances of accidents and discouraging young people from drinking heavily.

Using the United Kingdom as an example, the government announced sin tax revenue from alcohol of £10.7bn between 2018 and 2019. This is possible because the relationship between the demand for alcohol and price is inelastic — as such, a tax increase will result in higher revenue for the government. Though this figure may seem significant, it indicates a decline in alcohol between 1981 and 2017, signifying a drop from 1.22% of GDP in the former year to 0.55% of GDP in the latter.^[2]

Contrary to popular misconceptions, the drop in alcohol’s contribution to GDP is good news for the government. It shows that regulatory policies are yielding results, and the social cost of alcohol is shrinking. To have everyone on the page, the social cost of alcohol refers to society’s external cost of alcohol consumption. As we mentioned earlier, some of the costs include increased accidents and crime, decreased productivity due to absenteeism, and alcohol-related illnesses and deaths.

In the United States, the annual external cost of alcohol is estimated at 184.6 billion dollars for healthcare and criminal justice and an average of one hundred thousand deaths. All of these point to the reasons why governments use taxation as a weapon to frustrate the existence of a free market for beers, ales, and wines, among other similar beverages. See more articles here

On this day in history

April 19, 1775: Also known as the American war of independence, the revolutionary war began on April 19 in the quest for America to gain independence from Great Britain. The Saratoga war (one of the battles during the war) is considered the pivoting point after the British troops and their German allies were defeated in 1777.

June 4, 1792: British General John Burgoyne died at 70. He led the British army against the US in the revolutionary war. He surrendered his troop of 5000 men to the American military at the battle of Saratoga in Newport.

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Reference

1. “Federal Excise Taxes On Alcoholic Beverages: A Summary Of Present Law And A Brief History.” 2022. Everycrsreport.Com. https://www.everycrsreport.com/reports/RL30238.html.
2. Pettinger, Tejvan. 2022. “Pros And Cons Of Higher Tax On Alcohol – Economics Help.” Economics Help. https://www.economicshelp.org/blog/235/taxes/should-tax-on-alcohol-be-increased/.
3. Image source