A key question in Taiwan’s controversial decision to cut the excise tax on rice wine is whether the move has violated the principle of equal treatment for imported and locally produced goods, a former WTO official said on Thursday.
Based on that principle, which is laid out in Article 3 of the General Agreement on Tariffs and Trade (GATT), the US and European countries believe that Taiwan’s excise tax on imported alcoholic and tobacco products should also apply to local products, Roderick Abbott, a former deputy director-general of the WTO, told the CNA.
Rice wine, which is used as a cooking ingredient in Taiwan, will soon be subject to a lower excise tax as the Legislative Yuan amended the Tobacco and Alcohol Tax Act (菸酒稅法) on Thursday to categorize the product as cooking wine, rather than a distilled spirit.
At present, distilled spirits are subject to an excise tax of NT$2.5 (US$0.08) per liter of alcohol. The tax on a 0.6-liter bottle of red-label rice wine that contains 19.5 percent alcohol is NT$29.25, if it is taxed as a distilled spirit.
The excise tax on cooking wines is NT$9 per liter, regardless of their alcohol levels. Taxing rice wine as a cooking ingredient will drop the excise tax on red-label rice wine to NT$5.4 per bottle, which will in effect decrease its price from NT$50 to NT$25 per bottle.
The Ministry of Finance said that although the cut is expected to increase the sale of the wine from 7.5 million bottles per year to 210 million — the amount before the NT$29.5 tax was imposed — it is set to cost the government NT$1.47 billion in tax revenue.
The US government expressed concern on Thursday over the Taiwan legislature’s approval earlier in the day of a tax reduction for rice wine — a kitchen staple among Taiwanese consumers.
“The United States is concerned with the potential market impact of Taiwan’s tax reduction on rice wine,” said an official with the Office of the US Trade Representative in response to a query from CNA.
The US trade representative has already conveyed its concerns about the tax cut directly to the Taiwanese authorities, the official said.
The US expects all WTO members to abide by their WTO obligations. It would be inappropriate to comment on whether this, or any other specific issue, might be subject to WTO litigation, the trade representative said.
The WTO does not accept the idea of different treatment for alcoholic products based on their ingredients, Abbott said.
For example, he said, the WTO determines that wheat-based whiskey and grape-based cognac should be subject to the same level of tax because they are both liquors.
The WTO believes that alcohol level, rather than ingredients, should determine the tax categories for alcoholic products, he said.
Ministry of Economic Affairs yesterday said it would continue to talk to the US and Europe to explain Taiwan’s reasoning for slashing the rice wine tax.
The ministry will also prepare itself for the possibility that the WTO will decide to take legal action against Taiwan, said a ministry official, who asked for anonymity.
“Ninety-six percent of rice wine is used as a cooking ingredient in Taiwan and is not consumed as alcohol,” Vice Minister Lin Sheng-chung (林聖忠) said on Thursday, adding that rice wine should not be compared to distilled spirits, such as whiskey or brandy.
additional reporting by Jason Tan
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