Hong Kong Cuts Alcohol Tax to Boost Trade

While China remains engaged in a trade war with the European Union, imposing tariffs on certain types of alcohol among other products, the Hong Kong government has taken the opposite approach. On October 16, Chief Executive John Lee Ka-chiu announced a significant reduction in the tax on high-alcohol beverages, aiming to solidify Hong Kong's position as the leading wine and spirits trading hub in Asia. Under the new policy, the liquor tax will be cut to 10%, applying only to the portion of the bottle price that exceeds HK$200. Previously, Hong Kong had one of the world's highest taxes on alcoholic beverages over 30% alcohol by volume, set at 100%.

John Lee explained that the move aims to "promote liquor trading" as part of a broader strategy to "explore new areas of growth" for Hong Kong, which has seen a decline in both tourist numbers and foreign residents. The decision aligns with existing tax policy on wine and beer, categories where Hong Kong eliminated taxes in 2008, allowing the territory to become a key wine trading hub in Asia. By 2018, a decade after removing wine tariffs, Hong Kong's total wine imports reached $153 million, compared to $121 million in 2006.

The idea of reducing liquor taxes has been discussed since July, when several local politicians urged Lee to review the levy. They argued that easing tax rates could attract more alcohol import businesses, commercial distribution, and auction activities. Industry experts believe this measure will not only boost liquor trading but also have a more positive economic impact than the current tax revenue, which accounts for just 0.1% of total fiscal income, according to government data.

Sales of baijiu, the traditional Chinese liquor, are expected to benefit from the lowered import taxes. Even though tourism in Hong Kong is still struggling post-pandemic, reaching only 60% of pre-crisis levels in the first four months of this year, the tax policy is expected to curb the trend of Hong Kong residents crossing the border into Shenzhen, where food and beverage offerings have grown significantly.

This tax cut in Hong Kong contrasts with other regions where taxes on liquor remain high. In mainland China, rates range from 15% to 25%, while in other countries, such as Norway and the United Kingdom, taxes represent a significant portion of the bottle's price. According to World Health Organization data, taxes in Norway make up 89% of the price of a typical bottle of liquor, while in the United Kingdom, that figure is 64%.

This move seeks to revitalize a sector that has been crucial for Hong Kong's economy in recent years, positioning the territory as a central hub for alcohol trade within and beyond Asia.