Wine tax: a case-study comparing the UK and Singapore
I previously wrote about how wine retail prices in Singapore are generally between 200 and 300% higher than in the UK. One big part of the reason behind that is the high levels of duty and tax imposed upon wine here, which also provides an interesting comparison with the recently launched campaign to reduce wine taxes in the UK.
Comparing wine tax in Singapore with the UK
Today, tax on alcohol in Singapore is calculated on the basis of 88 SGD per litre. In practice, that equates to 8.58 SGD on a 750ml bottle of 13% wine (88 x 0.75 x 0.13). Added to that is the standard 7% GST (much lower than the 20% VAT in the UK).
So, in a 38.40 SGD (£23) bottle of Jacob’s Creek Chardonnay, 9.18 SGD (£5.48) is tax (or 24%). For the same bottle in the UK, retail cost is £6 (10 SGD) and tax is £3.23 (5.41 SGD) (or 54%).
Of course, the question of affordability is inextricably linked to average earnings, and I’m not going to investigate that here. What interests me is the vast difference in potential profitability between the two markets. In the UK, there is £2.77 (4.64 SGD) to split between the importer, wholesaler and retailer. Everyone complains that margins in the UK are far too low - and this illustrates why.
In Singapore, there is 29.22 SGD (£17.45) to share between the producer and middlemen - that’s six times more potential profit. However, another factor concerns volume. According to OIV statistics, the UK imports something like 45 times more wine, and has a per capita consumption which is eight times higher than Singapore.
To make a (very simplified) case study, let’s assume that the producer gets one-third of the profit margins mentioned above - so, 9.74 SGD (£5.82) per bottle in Singapore and £0.92 (1.54 SGD) in the UK. They therefore need to decide whether they want to sell 10 cases at a total profit of 1,169 SGD (£698), or 450 cases at a total profit of £4,968 (8,320 SGD).
It might seem like a no-brainer, but the reality is far more complicated and depends on volumes produced, marketing potential, route to market, legislative barriers, local costs and all sorts of other factors.
Will reducing tax increase profitability?
For years, the UK wine trade has complained about the high prices of wine tax. Compared with other alcohols, it certainly does attract higher levels, which seems unfair. If wine duty was reduced in the UK, however, the question remains as to whether profitability would get more healthy for all parties - or whether shelf prices would simply go down.
One of the interesting things about wine in Singapore is that the local populace has an expectation that wine should be expensive. Anything costing less than 35 SGD per bottle would be considered too poor in quality. Whereas in the UK, the vast majority of wine is sold at a cheap level, where low price is the most important purchasing cue. UK consumers have no inclination to pay more, and in a competitive and saturated market that is dominated by supermarkets, there’s a danger that a reduction in wine duty would simply result in shelf prices getting lower, rather than restoring profitability.
Nobody can be sure for certain, of course, but these are important questions to answer. In Singapore, at least, there seems to be no appetite for reducing duty levels, so I’m just going to have to get used to paying more for wine - just like the locals are.