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Amid continued inflation, Korea to review liquor tax system

By Shim Woo-hyun

Published : March 13, 2023 - 16:38

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Beer products are shown at a discount store located in Seoul, Monday. (Yonhap) Beer products are shown at a discount store located in Seoul, Monday. (Yonhap)

The government will examine the liquor tax system, which has been propelling recent increases in beer prices amid the persistent inflation.

According to the Korean Statistical Information Service’s data on Monday, the price index for beer products at restaurants and outdoor dining establishments has increased to 112.63 in February, up 10.5 percent compared to the same month a year ago.

It was higher than the increase of the price index for beer products at discount and convenience stores: 5.9 percent.

The overall consumer price index was up 4.8 percent last month, compared to February 2022.

“Price increases in liquor products at restaurants are usually higher than price increases at discount stores, as owners of outdoor dining establishments tend to cancel out increasing management expenses first by raising their beverage prices,” said a source from the local alcoholic beverage industry.

The government believes that the current liquor tax law is causing tax hikes in beer products and encouraging beer manufacturers to raise their prices.

Since 2020, the South Korean government has been annually updating liquor tax on beer products based on the consumer price index a year prior. In other words, when this year's consumer price index increases, the liquor tax on beer products also goes up next year.

The government thinks the high inflation will continue and lead to another increase in tax rate for beer products next year, cueing companies to make price hikes next year or afterwards.

The government is now looking into options to make an amendment to the liquor tax law, to decouple beer products from the consumer price index and to prevent the prices of beer products from further increasing.

“A tax increase can become an excuse for alcoholic beverage companies to make a price hike in their products,” Finance Minister Choo Kyung-ho said Friday last week. Choo added that coupling the liquor tax on beer products with consumer price index requires a “review.”

In 2021, the Ministry of Economy and Finance increased the tax rate on beer products by 2.5 percent, which was equal to the rate of the consumer price index in 2020. In 2022, the ministry decided to increase the tax rate again on beer products by 3.57 percent, reflecting the previous year’s 5.1 percent increase in the consumer price index.

Due to the raise made last year, the tax on beer products this year will increase 885.7 won ($0.68) starting on April 1. Local beer manufacturers were going to reflect the tax raise in their products but decided not to increase their prices, largely as they came under pressure from the government.

If the ruling and opposition parties come to an agreement to change the liquor tax law, the amendment can be included in the government’s tax reform proposal this year.

But if the government’s research in the area takes longer, the change may be included in next year’s proposal for tax reform.