Bubbly - a justified basis of difference in taxation?

11 October 2010

Kasper van Eck, Kimberly Schreuders

Based on Dutch tax legislation, Dutch VAT and customs duties are levied on the import of various products amongst others on the import of wine. In general, on beverages containing alcohol, the standard rate of 19% of Dutch VAT is levied over the value for customs purposes. Contrary to the VAT, the rate of customs duties levied differs if the wine is either sparkling or non-sparkling. On sparkling wine (with an alcohol percentage of 12%) EUR 240 customs duties per hectolitre (approximately EUR 1.80 per bottle) are due, while on non-sparkling wine (with an equal percentage of alcohol) EUR 70 customs duties per hectolitre (approximately EUR 0.50 per bottle) are due.

It seems rather peculiar that a tax rate is levied on a product depending on whether it contains bubbles or not. The above distinction in taxation originates from the days that the consumption of sparkling alcoholic beverages such as champagne, prosecco and cava was only within reach of the privileged upper-class. As these ‘happy few’ could indulge in the luxurious excesses of drinking bubbly, it was justified to levy higher customs duties on sparkling alcoholic beverages.

However, following recent research, the increase in consumption of sparkling alcoholic beverages has been staggering over the last few years. According to research by the Dutch wine commodity board[1], the sale of bubbly in the Netherlands has increased by 49% in 2009 and is consumed throughout all layers of society.

In view of this increased popularity, questions have been raised whether the inequality of taxation of sparkling and non-sparkling wines is still to be justified. In order to have the higher customs duties on sparkling alcoholic beverages abolished, an internet petition[2]has been initiated by wine devotee and well-known Dutchman Hubrecht Duijker[3]. A minimum of 40,000 signatures is needed in order to kick the legislative apparatus into motion.

However, could this petition boomerang back to the consumer if the Dutch legislator would decide to make an end to the distinction of taxation by elevating the customs duties on non-sparkling alcoholic beverages (instead of lowering tax on bubbly)? This extra income in current times in which the economy is in a slump would be most welcome for the Dutch treasury. Time will tell.

[1] http://wijn.nl/
[2] http://petities.nl/petitie/ondersteun-de-bubbelpetitie
[3] http://www.hubrechtduijker.com/