Bid to make spirits easier to swallow

PUBLISHED : Thursday, 07 October, 2010, 12:00am
UPDATED : Thursday, 07 October, 2010, 12:00am

Thomas Bohrer is known to enjoy a good whisky or grappa, a potent Italian brandy, among friends and clients. But he rarely savours fine spirits in Hong Kong because of the hefty 100 per cent duties.

'When I'm back in Europe, or in Italy, I drink a lot more spirits,' he said.

The founder and owner of local cigar and wine merchant Habanos Holdings, Bohrer realised he wasn't alone in his reluctance to pay twice the price for the privilege of drinking spirits in Hong Kong.

Customers know wine and beer are tax-free, and they question why they should pay 100 per cent duty on spirits. Now, the drinks industry wants to renew calls on the government to reduce the divide between tax-free beer and wine and dutiable spirits by reforming the way alcoholic beverages are taxed. Details are being finalised for a budget submission to the government this month by the Hong Kong Wine and Spirits Industry Coalition.

The submission argues that the 100 per cent duty on spirits has created an unbalanced and unfair situation given that beer and wine have been tax-free for more than two years.

Worldwide, alcoholic beverages are usually subject to some form of tax, whether it is a duty or a general sales tax. The coalition is not yet calling for spirits to be duty-free but has long wanted duties to be based on the volume of alcohol in a bottle of spirits.

Levying duties on spirits at a fixed rate based on alcohol content is common practice in most developed countries.

In Britain, for example, duty is levied on spirits at GBP22.64 (HK$280) a litre of pure alcohol. The rate is generally around C$11 (HK$83) per litre in Canada.

But in Hong Kong, customs officers decide how much duty to levy on spirits by looking at the long-term sales history of a product, rather than solely at its current market price.

A similar budget proposal was made last year, but there was no concerted effort to lobby the government because of the economic recession, according to industry insiders, who did not want to be identified.

'We want to ensure that spirits are taxed reasonably and that there is not such a big divergence between beer and wine and spirits,' one of the insiders said.

As the proposal has not yet been submitted, a spokesman for the Financial Services and the Treasury Bureau was unable to comment.

According to a study this year by France's Vinexpo wine trade and exhibitions group and British market research company International Wine and Spirits Record, the consumption of spirits is expected to decline in Asia as more people choose to drink wine.

Between last year and 2013, spirits consumption is expected to grow by only 4.7 per cent after surging 20.3 per cent in the previous five years.

In 2008, Asians consumed just over 50 per cent of spirits worldwide.

While the government recognises the economic benefits of exempting beer and wine from duties, it continues to tax spirits because of worries that making them cheaper could lead to an increase in health problems as people drink more of them.

The government reaped almost HK$235.9 million in duties on alcoholic beverages in 2008-09.

The figure in 2009-10 is expected to have reached more than HK$238.7 million, and to fall back to about HK$235.9 million in 2010-11.

Despite the high prices, there was strong demand at the city's first whisky auction held by Bonhams in November last year.

More than 80 per cent of the lots were sold for a total of HK$547,936. Duty was only payable if the whisky was kept in Hong Kong.