The Alcohol Tax Gap Hits $1.23 Billion, and the Spirits Industry Says the Excise Is Part of the Problem

The amount of alcohol tax that goes uncollected each year has climbed above $1.2 billion, according to the Australian Taxation Office, prompting retailers and distillers to call for government action before illicit alcohol takes hold the way illicit tobacco has.

The estimate

The ATO’s Annual Report 2025–26 estimates the alcohol excise tax gap reached $1.234 billion in 2024–25, up from $732 million in 2020–21, an increase of 68.6%, according to Retail Drinks Australia. The latest estimate is provisional and represents 13.7% of expected alcohol excise revenue. The Australian Association of Convenience Stores reported that the gap was $1.169 billion in 2023–24.

Over a longer period, the gap has more than doubled since 2015–16, growing by $685 million, Food & Drink Business and The Spirits Business reported. A tax gap is the ATO’s estimate of the difference between the tax it would collect if everyone fully complied and the amount actually collected.

The Spirits Business reported that the ATO attributed the gap to illicit activity including unauthorised manufacturing, authorised manufacturing with under-reported or unpaid excise, product diversion, cross-border transactions and deliberate fraud or evasion.

Retailers: a job for governments

Retail Drinks Australia chief executive Michael Waters said the industry could not deal with the problem on its own. “The ATO has identified serious compliance risks at the manufacturing level. Governments must work together to identify those responsible and stop illegal products moving through the supply chain,” he said. “Australia has seen the consequences of allowing illicit tobacco markets to become entrenched. We cannot afford to repeat that experience with alcohol.”

Retail Drinks said it set up an Illegal Products Working Group in late 2024 and this year launched a “Know Your Product” campaign giving retailers supplier verification checklists and guidance on quarantining and reporting suspicious products.

Distillers: look at the rate

The Spirits Council of Australia went further, linking the problem to the level of excise. Executive director Steven Fanner said: “Let’s be very clear, this hurts everyone – the government is losing more than $1 billion a year in revenue, responsible producers are struggling and consumers are being put at risk by products they can’t trust.”

The council says spirits excise, which rose in August 2026 to $110.15 per litre of alcohol, is the highest in the world outside Scandinavia. It also noted that the federal government has written off about $2.3 billion in forecast spirits revenue over the four years from 2024–25 to 2027–28.

Mr Fanner also raised concerns about the Alcohol Manufacturer Remissions scheme, which provides eligible distillers with up to $400,000 a year in excise relief. He claims it is being exploited by organisations that are not distilling but are moving tax-free spirits through the market, and the council says the scheme now costs almost three times what was expected when it was introduced in 2021. The Spirits Business reported that the council welcomed an ATO announcement in August that it would crack down on exploitation of the scheme.

Why it matters

For licensed venues, bottle shops and producers, illicit product is a competition problem as well as a revenue one, because it undercuts businesses that pay the full rate. How Canberra responds, through enforcement, the design of the remission scheme or the excise rate itself, will be watched closely by the drinks industry.

Sources: Retail Drinks Australia media release (30 October 2026); Australian Association of Convenience Stores (6 November 2026); Food & Drink Business (9 November 2026); The Spirits Business (9 November 2026).