How much tax are you REALLY paying on everyday items?
The simple act of going shopping is helpful for the economy – obviously. Not only do you keep a shop in business and people employed, you indirectly contribute to the suppliers and transport companies and sundry other entities which have a stake in you taking home that product.
But you are also helping the government, sometimes very generously. At every point along the way, the government takes its piece, but very few of us understand how much tax we’re paying on an average trip to the shops. It turns out that a large part of the prices we pay is made up of taxes, tariffs and import duties.
So here’s the The New Daily’s guide to the taxes you pay on everyday products.
Beer
Beer is slugged twice, first by an excise or “sin tax” and then GST. On top of all that, a foreign-made beer will often have import duties on it as well.
The amount of excise depends on the quantity of alcohol in the beer, and the size of the container. So for stronger beers, the tax is higher.
If you want true value for money, you’ll need a 48-litre keg. Back in 2001, politicians decided to drop the excises on kegs to keep down the price of beer in pubs.
$3 Stubby (375ml) of full strength beer
$2.18 price
$0.60 excise
$0.22 GST
————–
Total tax: $0.82 taxes (27 per cent of total price)
$50 slab (9 litres) of full strength beer
$32.77 price
$13.95 excise
$3.28 GST
—————
Total tax: $17.23 (34 per cent of total price)
Spirits
Most bottles of spirits are taxed at the same rate, so long as their alcohol content by volume exceeds 10 per cent. The current rate of excise is $78.44 per litre of alcohol, which works out to be a hefty chunk of the price of your favourite liquor.
$70 bottle of vodka: (700ml at 40pc alcohol)
Price: $43.67
Excise: $21.96
GST: $4.37
————–
Total tax: $26.33 (37 per cent of total price)
$40 bottle of whiskey: (700ml at 37pc alcohol)
Price: $17.34
Excise: $20.30
GST: $1.73
————–
Total tax: $22.03 (55 per cent of total price)
Wine
Unlike beer and spirits, wine is taxed at a flat rate, regardless of alcohol content.
Russell Wilkinson, Lead Partner in Customs and International Trade (Tax Advisory) at Crowe Horwath, says that the wine equalisation tax applies to 29 per cent of the glass wholesale prior to resale.
“It isn’t volumetric,” he said.
While still quite steep, it means that many wines carry slightly less tax, especially if you opt for a local vintage that doesn’t carry import duties.
If you’re looking for a good time on the cheap, a nasty cask of wine is going to be your best friend, because they generally have lower wholesale values – and thus lower taxes.
$25 bottle of locally-made wine
Core price: $16.82
Wine Equalisation Tax: $6.55
GST: $1.63
——————-
Total tax: $8.18 (almost 33 per cent of total price) ♠
Luxury Cars
Australians pay hefty prices for their motor vehicles, most of which are imported from overseas. Imports are slugged not just with customs duties and GST, but the luxury car tax (LCT) as well.
The LCT effectively means that for every dollar a vehicle is valued at by customs over the relevant threshold, the government claims a number of cents.
The cost of this tax is usually deferred to the consumer, so the new car salesman doesn’t pay the LCT until you hand over your money. A lot of it.
For example, on a luxury petrol car that costs the importer $60,000, the taxes and duties bill would come to $12,640.20.
If you end up buying the vehicle for $90,000 in New South Wales, then you would be slapped with another $3,600 on top, bringing the total tax and duties to $16,240.20 or around 18 per cent of the price of the car.
To combat the LCT, many manufacturers are building cars that fall within the fuel efficiency thresholds of 7 litres per 100 kilometres, which can reduce the luxury tax to zero.
Luxury car tax only kicks in on imported fuel-efficient vehicles, such as diesel and electric cars, valued at $75,375 and over (GST inclusive), or $60,316 for less efficient models.
Luxury Car (petrol, worse than 7 litres per 100 kms)
Customs value: $60,000
Customs Duty: $3,000
GST: $6,450
Luxury car tax: $3,190.20
Indicative sales price: $90,000
PLUS Stamp duty (NSW): $3,600
——————————————
Total tax and duties: $16,240.20 (a little over 18 per cent of indicative total price) ♣
Clothes
According to Mr Wilkinson, we pay an exorbitant 10 per cent in import duties on clothing, whereas things like shoes have duties of 5 per cent.
Once you factor in GST, this high rate goes some way to explaining why big brand clothes are so expensive here in Australia.
But thankfully, Mr Wilkinson said that this high tax rate “should be coming down at some point”. Hopefully soon.
Food
Food is another staple that often attracts import duties to protect local farmers.
“A lot of it is subjected to 5 per cent [import duties] because of course we have a lot of food manufacture in the country,” said Mr Wilkinson.
Working out the amount you pay in taxes on your groceries isn’t easy. It depends on whether or not Australia has a free trade agreement with the country of origin, and then on how much the customs officials think the food is worth when it enters the country.
And then, you’ve also got to factor in how much the importer paid to ship the food here in the first place – what Mr Wilkinson describes as “the tyranny of distance issue”.
By the time you’ve figured out all that on your calculator, you’re better off just buying locally made.
Cigarettes
Cigarettes are another vice hit by the so-called ‘sin tax’. Each cigarette is taxed at a little over 40 cents per stick, which works out to $10.16 on a pack of 25.
You’re also paying 10 per cent GST on the pack. And if your ciggies are imported (which they most likely are), then you’re probably also paying 5 per cent in customs duties.
Pack of 25 cigarettes: $22
Core price: $9.84
Excise: $10.16
GST: $2
————————
Total tax: $12.16 (55 per cent of the total price) ♥
Online Shopping
One area where we get a little respite is online shopping, which is becoming incredibly popular.
Thanks to the difficulty of policing the huge volume of goods that flood into Australia each day, customs only charges GST and duties on goods valued over $1,000.
And now, it’s not only overseas sellers who benefit from these lower prices.
Mr Wilkinson’s firm, Crowe Howarth, has been working on legal ways for Australian retailers to sell GST and duty-free goods as well, by opening online stores and shipping the products from overseas.
“We’ve had sign off from customs and border protection where you can actually structure a sale at the point of sale that goes overseas and then that gets delivered to the customer in Australia,” he said.
So while we pay huge amounts of tax on other items, we could soon be making big savings on things like clothes, shoes and other popular online purchases.
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♠ Source: Computing at home (http://www.computingathome.com.au/wpconline.html)
♣ Sources:
Australian Customs and Border Protection
♥ Note: The excise rate on cigarettes is precisely $0.40639 per stick
