It’s not often one gets to raise a glass to the tax office, but here in Spain it’s something I heartily recommend.
You see, those of us who live here often forget how lucky we are. We live in a wine-producing country that churns out over 6 billion bottles of the stuff every year.
And we don’t pay a cent of duty on any of it.
Successive governments have decided, very sensibly, that applying zero duty on wine is the best strategy to help winemakers keep producing and selling it.
Now that might seem like a minor point, a mere drop of grape juice in a barrel of crianza. But if you start to think about the different “component parts” that go into each bottle of wine to make up the total price you get a different picture.
Part of the price of a bottle of wine goes to cover production costs. Land prices, labour or fuel costs, the price of oak barrels for ageing…these are all things which come into play and can be exacerbated from one year to the next if, for example, a poor harvest creates scarcity and demand starts to outstrip supply.
Then there’s packaging. Bottles, labels, corks, and cardboard boxes all need to be factored in and the global supply pressures mean the cost of all of them has been creeping up slowly. And don’t forget all the sales and marketing costs, plus the margins that the various importers, distributors and retailers are looking to make.
But the big thing to note is tax.
In the UK, duty on a bottle of wine is currently £2.23. And on top of that, you’ve got 20% VAT. In all, the UK Treasury routinely collects around £6bn from duty and VAT on wine (source: WTSA). According to Gavin Quinney’s excellent article “19 Unpalatable Truths about UK Wine Duty”, before the UK left the EU it's revenues from taxes on wine represented over 60% of all wine taxes across the whole of the union (yes, you read that correctly!).
But Spain is different. Our kind-hearted tax office only charges 21% IVA (Spanish VAT) on wine – and no duty.
And that makes a real difference. Take a look at the graphic below and you’ll see that if you pick up a bottle of wine for £5, a chunky 61% of the cash you’re handing over is tax. Whilst for a €5 bottle in Spain, Hacienda only takes 17%.
Move up to £10 in the UK and things improve. But you’re still handing over nearly 40% to HMT. It’s not until you start spending around £20 on a bottle that your tax contribution drops below 30% of the bottle price. All the while in Spain, the proportion of the total bottle price that goes to the tax office stays at 17% across the board.
That means in the UK you have to spend more money to get better value for money. As you spend more money on a bottle, you’re effectively spending a smaller proportion on tax and a larger proportion on the wine itself.
In Spain, that doesn’t happen. The proportion of tax is always the same. So you get great value from the outset.
We are living in hard times and most consumers have become much more price conscious over the last year. Wine is no exception. Save the odd special occasion, we tend to buy wine based on what we can reasonably afford and our perception of how much value we’re getting in each bottle.
And thanks to the Spanish tax office, what we can afford here is considerably better than we could do in the UK. Not only are you paying much less for a good bottle of wine here, but much more of what you pay for is the wine itself. That’s good for the producer and it’s good for you too.
So next time you’re shopping for a bottle and examining the prices, spare a thought for those wonderful people at the Spanish tax office. And raise a glass of thanks in their direction for ensuring that your drop of the good stuff says much more affordable than it does for some less fortunate drinkers.
If you'd like a more in-depth analysis of UK tax rates on wine, check out the Gavin Quinney article we mentioned earlier: 19 Unpalatable Truths about UK Wine Duty.
Cheers!