ILLICIT ALCOHOL ACTION NEEDED AS ALCOHOL TAX GAP SURGES 70% IN FIVE YEARS

The Australian Taxation Office has revealed yet another increase in the 2024-25 alcohol excise tax gap, one indicator of the scale of alcohol excise non-compliance.

The latest tax gap was estimated at $1.234 billion, up from $1.169 billion in 2023-24 and $732 million in 2020–21. This represented a 68.6 per cent increase over the past five years.

Missing alcohol tax now accounts for 13.7 per cent of overall expected alcohol excise revenue, four percentage points more than the year prior and the first time the gap has totalled more than 10 per cent of forecast tax revenue.

The figures come amid growing concerns over illicit alcohol, following UNSW-led research which found vodka containing methanol and plastic contaminants widely available in Melbourne liquor retail and a spike in criminal activity believed to be connected to the illicit alcohol trade.

Retail Drinks CEO Michael Waters said the figures reinforce the organisation’s warnings over the past two years about the growing threat posed by illegal alcohol production, distribution and sale.

“For two years, Retail Drinks has been warning that illegal alcohol poses a serious threat to consumers, legitimate businesses and government revenue,” he said.

Fixing the issue

The ATO’s latest findings strengthened the case for a coordinated response involving the Commonwealth, state and territory governments, enforcement agencies and industry.

“The ATO has identified serious compliance risks at the manufacturing level. Governments must work together to identify those responsible and stop illegal products moving through the supply chain,” Waters said.

“Australia has seen the consequences of allowing illicit tobacco markets to become entrenched. We cannot afford to repeat that experience with alcohol.”

Spirits Council of Australia executive director Steven Fanner expressed similar concerns in Drinks Trade’s three-page feature in issue #100 titled The emerging illicit alcohol threat.

“This is a hugely important issue for the spirits industry,” he told Drinks Trade. “We’ve seen what’s happened with tobacco in recent years where the majority of consumers have been priced out of legal products and into the black market, and we’ve seen the warning signs of similar trends starting to happen in spirits. We don’t want to go down the same path.”

Fanner said spirits are disproportionately represented in illicit alcohol activity and called on a number of changes to prevent the segment from growing further.

First, he called for excise to be reduced to a level more in line with comparable countries.

Second, for loopholes in the excise remission scheme to be tightened.

Third, the broader regulatory framework should be adjusted to better address the varied and potentially severe risks posed by illicit alcohol.

Positively, Fanner points to the ATO’s compliance action to tighten the remission scheme as evidence the risks are recognised by government. “We’re obviously hoping that we’ll see more change in the future, but this is a promising first step,” he said.

Retail Drinks pointed to its Illegal Products Working Group, established in late 2024, which brings retailers and producers together to coordinate industry action.

This year, the industry body also strengthened its Product Ranging Guidelines and launched its Know Your Product campaign, providing retailers with supplier verification checklists, practical tools to identify suspicious products, and guidance on quarantining and reporting them.

Michael Waters concluded: “Industry has stepped up with practical measures to protect consumers and keep illegal alcohol off shelves, but retailers cannot tackle tax evasion and illegal production alone and these ATO figures demand a concerted government response, working in partnership with industry.”

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