Wine tax in breach of trade guidelines

HONGKONG's hefty duties on wines and spirits are battering sales - hurting local Government coffers as well as foreign exporters - while the two-tier tax system breaches international trade guidelines, according to European diplomats and trade bodies.

The group of European trade commissioners and representatives of industry associations is lobbying the Government to cut taxes on wines and spirits ahead of next month's Budget, when, it is believed, the ad valorem duty will rise around 10 per cent, in line with inflation.

The two-tier tax structure, which slaps both a volume and an ad valorem levy on to alcohol, is slammed by the association as being contrary to the General Agreement on Tariffs and Trade (GATT) and highly inefficient.

By reducing taxes, revenue would go up and the system would be brought into line with GATT at the same time as helping cut Government overheads.

Spearheading the push, the Liquor and Provisions Importers Association claims the hefty tax burden on alcohol is costing the Government money - with revenues dropping as imports fall off - and that the tax structure used in the territory breaches GATT guidelines.

Association chairman Paul Hewitt said: ''Hongkong has a stated policy to be a free-trade zone and to support a laissez faire policy, but the tax structure on imported wine and spirits is inconsistent with GATT.

''GATT says that for an individual taxation on a commodity, the taxation should be on an intrinsic thing of the product, not on value, so you can compare like with like.'' At present, wine is levied at $42.20 a litre - or $351.63 on a pure alcohol basis - compared with just $7.92, or $19.81, for Chinese spirits. This is at odds with the respective strengths of the two drinks: 12 per cent as against 40 per cent.