Tequila suppliers call for alcohol tax rethink

A number of Tequila suppliers are lobbying the Mexican government to change the way alcohol in the country is taxed, urging the introduction of levies based on alcohol content rather than price.

Tequila producers are lobbying the Mexican government over the taxation of alcoholic drinks in the country

Some suppliers, including Diageo, say the current ad valorem system gives cheaper spirits an unfair advantage in the market and inadvertently boosts the illicit alcohol industry in the country. Others, including, Patrón Spirits International, are participating in discussions with the Tequila industry to develop a proposal.

At present under the ad valorem system, luxury alcoholic beverages in Mexico are subject to a 53% tax rate, whereas less expensive drinks, such as beer, see a 26% rate levied.

Mexico is one of just four OECD countries which uses the ad valorem system, alongside Chile, South Korea and Israel, reports the Financial Times.

“We are participating in the discussions taking place in the National Chamber for the Tequila Industry about the taxes applied to spirits in Mexico, in order to prepare the proposals of the Tequila industry to the government for the most adequate tax scheme for alcohol drinks,” Francisco Soltero, director of strategic planning and public affairs, Patrón Spirits Mexico, confirmed to The Spirits Business.

Meanwhile Diageo CEO, Ivan Menezes, has met with Mexican president Enrique Peña Nieto and finance minister Luis Videgaray to put forward the case for a tax policy rethink.

“Best practice, according to the OECD, on taxes for alcohol are based on alcohol content and not price. This is discriminatory for premium products like Tequila and whisky,” Menezes told the Financial Times.

“Changing the ad valorem system to a system based on litres of pure alcohol has clear benefits — it widens the tax net, it’s easier to administrate and promotes equal treatment among all alcohol categories.”

According to reports, the Mexican government in reluctant to amend the system, and president Nieto has repeatedly said he will not raise levies before 2018, when his term ends.

Under the current system, tax on beer sales raises 30bn pesos (US$1.7bn), compared with 13bn pesos (US$748 million) for wine and spirits a year, according to a government official. Diageo claims moving to an abv-based policy will raise at least as much revenue as the ad valorem system, citing a similar move by the Brazilian government which succeeded in raising more revenue.

Tequila sales in Mexico reached $1.14bn in 2014, according to IWSR figures.