The senate inquiry into the wine industry released its report last week and made 12 recommendations to the federal government on how it could improve the sector.

The first recommendation was to phase out the wine equalisation tax (WET) rebate over five years, allocating the savings to a structural adjustment assistance program for the industry.

The WET rebate allows small producers to compete on price against larger volume producers.

It means high-quality, low-volume producers can keep their wine prices at similar levels to those who produce higher volumes and creates savings in the overhead costs for the business.

Port Sorell-based wine producer Ghost Rock owner Colin Arnold said he would be totally opposed to the recommendation to remove the WET rebate for small producers and said it would have a huge impact on his wine's ability to compete with larger volume labels from the mainland.

"We have added cost in production of making wine because we are boutique," he said.

"So getting the rebate creates a more even and level playing field and allows us to compete with major chains."

Legana-based Velo Wines owner Michael Wilson echoed Mr Arnold's sentiments.

"Our volume of production is so small so we can't compete off price but when we get the rebate it assists us because we don't have to pay as much tax," he said.

Mr Wilson said if the WET rebate was phased out it would be "another nail in the coffin" for small wine producers and said he expected some of the smaller producers would have to close.

Wine Tasmania chief executive Sheralee Davies said the first recommendation from the inquiry was concerning for the industry.

"WET is based on the value of your wine," she said.

"The higher the value of your wine the more you pay."

Wine Tasmania made a submission to the inquiry when it came to Launceston and Ms Davies said part of that proposal was to recommend the industry look at wine taxation as a whole and not single out something small like the WET rebate.