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Chilean wineries to get squeezed by taxes and sluggish economy

Published:  23 May, 2014

A slowdown in Chile's economy and a possible tax restructure being debated in Congress would raise the price of wine and squeeze already-struggling producers.

Chile's Central Bank released figures this week indicating an economic slowdown, with growth hitting a four-year low, declining by 2.6% in the first quarter of 2014.

The tax would push the average price of wine in Chile in the over price of beer because alcohol tax will be based on the alcohol by volume of the drink. The proposed tax would be between 15% to 18% with a varying 0.5% tax per degree of ABV. In total wine could be taxed on average 24% per bottle.

The argument for the proposed tax is to bring Chile's alcohol tax to be closer to other Organisation for Economic Co-Operation and Development (OECD).  However, those opposed to the tax also site other member countries such as Spain, France and Italy as not having a wine tax and such a significant tax would be harmful to wine producers in the country.

Producers also are concerned that with a decline in the local market, trying to drive exports would be increasingly more difficult.

Chilean currency has continued to weaken since the beginning of the year. As of January of the year the peso was trading at 870.97 per 1 Great British pound and is now trading at 930.07. Other developing countries' currencies, like South Africa, have been declining at more rapid rate and have been growing their market share particularly among entry level wines.

Chilean wine has seen a 4% declined in the off-trade and a 12% decline in the on-trade in the UK, according to a Wine & Spirit Trade Association report released earlier this year.