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What would abolishing spirits tax mean for Hong Kong?
Hong Kong Chief Executive John Lee Ka-chiu is under pressure to scrap the region’s tax on spirits. But what is the reaction from retailers? Joyce Yip investigates.
In mid-July, politicians in Hong Kong called for Chief Executive John Lee Ka-chiu to lift or adjust the spirits tax ahead of his policy address in October.
The proposal aims to attract more imported liquor business, trade distribution and auction activities to reinforce Hong Kong as not only a hub for wine and beer – which have enjoyed zero duty since 2008 – but also spirits.
Currently, liquor with alcoholic strength of more than 30% by volume is charged 100% tax – a hefty price tag compared to 10% in neighbouring Macau and China. Hainan, the country’s biggest duty-free market, announced last March plans to remove VAT and excise tax entirely for imported wine and spirits, though no specific timeline was mentioned.
“Since we cancelled the wine tax in 2008, Hong Kong has become one of the leading centres in the world for the auctioning and trading of wine,” lawmaker Dominic Lee Tsz-king of The New People’s Party told South China Morning Post. “We think if we adjust our spirits tax, we will have the same effect and it will allow Hong Kong to become an international auction and trading centre for spirits.”
In 2018, just over a decade since the abolishment of wine duties, total wine imports to Hong Kong were US$153 million – an increase from the 2006 figure of US$121 million.
Lee’s report also argued that rippling economic benefits from an adjusted spirits tax in retail, travel and trade would outweigh that from tax income, which has only accounted for 0.1% of total tax revenue in the past eight years, according to government data.
Lee’s proposal also claimed that a zero spirits tax can reduce bootleg and counterfeit alcohol. He suggested progressive percentage reduction of 30-30-40 per cent to ease into total abolishment.
Another political party – The Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) — has argued that if zero duty can’t be achieved, liquor taxation should be based on the quantity of spirits – practised in Taiwan and Japan – instead of its wholesale price, otherwise known as advalorem tax.
The DAB proposed a 90% reduction in duties in January during Hong Kong’s 2024 to 2025 Budget Consultation but was denied based on the fairness of the advalorem taxation system over unit tax. The decision also concluded that liquor duty is an effective way of discouraging alcohol consumption.
Zachary Chan Tin-ying, co-founder and director of HK Liquor Store – home to a 60-40 split of spirits and wines – disagreed with the government’s health claims.
“If they wanted to discourage alcohol consumption, then they should tax all forms of alcohol including wines and beer,” he said.
He also argued that savings from a liquor tax reduction would either fail to trickle down to retailers like him or allow for steep, unrealistic discounts that spark race-to-the-bottom price wars.
He instead sided with a tax reduction of 25%-30% and a scheme based on alcohol percentage or volume, which he hopes will encourage importers to bring in wider varieties of premium and craft brands.
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