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  • Australia Faces $1.23 Billion Alcohol Tax Deficit as Illicit Market Expands

    Australia Faces $1.23 Billion Alcohol Tax Deficit as Illicit Market Expands

    The Australian Taxation Office projects uncollected alcohol excise will reach $1.23 billion across the 2024 to 2025 financial year as illicit market transactions outpace domestic compliance efforts.

    That shortfall represents 13.7 per cent of total expected alcohol tax revenue, climbing roughly 0.4 per cent year on year.

    Shadow economy transactions drive the vast bulk of the leakage. An estimated $1.06 billion, or 91.8 per cent of the total uncollected sum, stems directly from off-grid, untaxed trade rather than technical filing discrepancies by registered businesses.

    Shadow Trade Squeezes Formal Retailers

    The swelling tax gap alters competitive dynamics across Australia’s bottle shops, hospitality operators and regional producers. Licensed retailers face biannual automated indexation increases on spirits and beer excise, widening the price gulf between compliant shelves and illicit sellers. High shelf prices encourage consumer leakage into underground channels, compressing gross margins for legitimate store owners.

    Distillers and brewers operate under tighter working capital requirements while illegal operators operate without duty obligations. Commercial suppliers that rely on mainstream wholesale distribution face declining volume turnover in price-sensitive spirits categories. The resulting distortion hits mid-tier domestic craft producers hardest, as they lack the scale to absorb heavy tax overheads.

    Broadening Regulatory Deficit Since 2015

    Tax leakage in the category has expanded steadily over the past decade. The uncollected tax share stood at 9.3 per cent in 2015, showing a persistent upward trajectory as excise rates increased through regular inflation adjustments. While overall revenue collection expanded during the period, the share escaping public coffers grew by more than four percentage points.

    Enforcement agencies now face sophisticated illicit supply chains that bypass conventional import gates and domestic manufacturing controls. For the federal treasury, losing over a billion dollars annually complicates broader fiscal planning while leaving legitimate retail channels bearing the enforcement burden.

    Enforcement Targets for the Coming Budget Cycle

    Tax monitors are shifting resources toward cross-border freight audits and unlicensed domestic distilling operations. Revenue officials will reconcile commercial raw material flows against recorded retail sales volumes to identify production diversions.

    Retail networks and trade associations will track whether the federal government freezes upcoming automated alcohol excise indexations in the forthcoming budget review to prevent further migration into illicit buying channels.

  • PepsiCo loses tax fight with ATO

    PepsiCo loses tax fight with ATO

    PepsiCo has been ordered by the Federal Court to pay royalty withholding tax and, in the alternative, diverted products tax (DPT), which would apply.

    The first time it has been considered in court, DPT is a new tool to ensure large global businesses operating in the country are paying the correct amount of tax by the level of their economic activities.

    The tool was designed to prevent the diversion of profits offshore through contrived arrangements and imposes a 40 percent tax penalty rate to be paid upfront.

    It is a separate tax liability from income tax; therefore, a taxpayer may have an income tax assessment and DPT assessment for the same period.

    The Australian Taxation Office (ATO) has been targeting arrangements where royalty withholding tax has not been paid because payments have been mischaracterized, mainly for using intangible assets, such as trademarks.

    “The PepsiCo matter is a lead case for our strategy to target arrangements where royalty withholding tax should have been paid,” remarked Deputy Commissioner Rebecca Saint.

    “While there may still be more to play out in this matter, it sends strong signals to other businesses with similar arrangements to review and consider their tax outcomes.”

    The Tax Avoidance Taskforce (TAT) focuses on multinational tax avoidance and profit shifting. Most large businesses are meeting their tax obligations; however, the ATO said it will continue to use all the tools to challenge those who don’t.

    Since 2016, the TAT has secured more than $27.7 billion in additional tax revenue from multinational enterprises and large public and private businesses (up to 31 August this year).

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