HK on Brink of Liquor Industry Revolution

The potential repeal of the liquor tax in Hong Kong has sparked a robust debate, placing Chief Executive John Lee Ka-chiu under considerable pressure to address this issue before his policy address in October. Both politicians and retailers argue that eliminating or reducing this tax could significantly transform the region's liquor market.

Currently, liquors with an alcohol content above 30% are subject to a hefty 100% tax. This rate is notably higher compared to neighboring regions such as Macau and China, where the tax is only 10%. Hainan, another key market, has even announced plans to completely abolish VAT and excise duties on imported liquors, although a specific timeline has yet to be set.

Dominic Lee Tsz-king, a legislator from the New People's Party, has pointed out that the removal of the wine tax in 2008 turned Hong Kong into a global hub for wine auctions and trade. Lee believes that a similar move for liquors could have a comparable impact, positioning Hong Kong as an international center for liquor auctions and trade.

The abolition of the wine tax yielded positive results. By 2018, wine imports to Hong Kong had soared to $153 million, a substantial increase from $121 million in 2006. Lee argues that the economic benefits of reducing the liquor tax—in terms of retail trade, travel, and business—would outweigh the fiscal revenues, which have only accounted for 0.1% of total income over the past eight years.

Furthermore, Lee suggests that a zero tax on liquors could reduce smuggling and counterfeit alcohol, proposing a gradual reduction of the tax by 30% in three phases to facilitate a smooth transition.

Another political group, the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB), has proposed that if the tax cannot be eliminated, it should be based on the alcohol content rather than the wholesale price. This system, akin to those in Taiwan and Japan, could be seen as more equitable.

In January, during the 2024-2025 Budget Consultation, the DAB proposed a 90% reduction in liquor taxes, but this suggestion was rejected. The government argued that the ad valorem tax system is fairer and that the liquor tax is an effective tool to discourage alcohol consumption.

Zachary Chan Tin-ying, co-founder and director of HK Liquor Store, has expressed his disagreement with the government's health-related claims. According to Chan, if the true intention is to discourage alcohol consumption, all types of alcoholic beverages, including wines and beers, should be taxed. He also notes that a reduction in liquor taxes might not benefit retailers like him, as it could trigger an unsustainable price war. Chan supports a tax reduction of 25%-30% and advocates for a system based on alcohol content, hoping this will encourage the importation of premium and craft brands.

In conclusion, while the potential repeal of the liquor tax in Hong Kong could attract more business and liquor auctions, it also raises concerns about fairness and public health. The discussion remains ongoing, with final decisions expected in the coming months. The outcome of this debate will likely have far-reaching implications for Hong Kong's economy and its position in the global liquor market.