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[Newsmaker] Korea to change liquor tax system for first time in 50 years

South Korea has decided to change its liquor tax system for the first time in 50 years, shifting from a price-based to volume-based system, starting with domestically brewed beer and rice wine, the Ministry of Economy and Finance said Wednesday.

The tax revision bill for 2020 will state that liquor tax will be levied based on the amount of alcohol sold, rather than adopting ad valorem calculations, which is based on the retail base price. The government plans to submit the bill to the National Assembly in September. 

Employees promote imported beer at a local market in Seoul. (Yonhap)
Employees promote imported beer at a local market in Seoul. (Yonhap)

The aim of the government’s decision to alter the system that had remained untouched since 1968 is to resolve tax imbalances between domestically-produced liquor beverages and imports.

It addresses growing complaints from local liquor companies that the current system -- 72-percent tax on domestically-produced beer -- gives imported beer brands an advantage. The tax base takes manufacturing and marketing costs, and projected sales into account.

Meanwhile, the taxes levied on foreign beer brands only include import price and tariffs, which enables them to sell a pack of four cans at 10,000 won ($8.47) in local convenience stores.

Last year, the average tax for domestic beer brands was estimated at 848 won per liter, compared to 709 won per liter for imports. This helped imported beer brands more than double their market share in just three years -- to 20.2 percent in 2018 from 8.5 percent in 2015.

Under the new system, both domestic and imported beer brands will be taxed 830.3 won per liter, while makers of makgeolli -- off-white rice wine -- will pay 41.7 won per liter under the same law. Unlike the current 72-percent tax imposed on domestic beer, the government only collects 5 percent tax on makgeolli, which is the lowest-level among liquor products here.

As a result, the retail price of 500ml domestic beer, which is around 2,850 won in convenience stores will decrease by about 146 won.

On expanding the scope to other alcohol beverages, Deputy Prime Minister for the Economy and Finance Minister Hong Nam-ki said earlier in the day that though the government is considering applying the new rules to all liquor products, it has decided against it to prevent an abrupt change that could have a negative impact on the market.

Despite anticipations and concerns surrounding the new system, analysts are skeptic that the latest move will bring a big change to consumer trends.

“The new system won’t make the retail price of domestic beer brands noticeably cheaper, despite being levied with less tax, and consumers -- who are more sensitive to retail prices -- are likely to continue their purchase of imported beer,” said Lee O-ryoon, an analyst at market research firm Euromonitor International.

Minister Hong also added that the government has decided to extend a temporary tax cut on purchases of passenger cars in its latest move to boost domestic consumption.

The government cut down a special excise tax on passenger cars by 30 percent to 3.5 percent between July and December in 2018, boosting sales by 2.2 percent on average during the period.


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