Value context and insight. lkm@koreatimes.co.kr
Gov't to revise tax scheme on beer
By Lee Kyung-min
By Lee Kyung-min
The government has decided to change its taxation system on beer by adopting a quantity-based code instead of a manufacturing price-based one, the Ministry of Economy and Finance said Wednesday.
The revision, aimed at fixing the tax imbalance between domestic and imported beers, is the first in half a century following years of ministry flip-flopping on its stance on what local breweries have called an “unfair, outdated” tax model.
The finance ministry said the measure will take effect as early as next year and the producers of beer and makgeolli, Korean rice wine, will be the first to enjoy the revision. The bill will be submitted to the National Assembly in September.
The government has delayed the revision fearing it could cause an unintended backlash from makers of soju and traditional liquors as well as the public at large, because many people enjoy the cheap alcohol.
Under the revision, the government will impose a tax of 830.3 won ($0.70) per liter on canned beer, a 23.6 percent reduction on the current tax.
Other than canned beer, beer sold in plastic or glass bottles will see a price jump of between 1.8 percent and 3.1 percent.
“The key reason for the revision was that 30 of 35 OECD member nations have adopted the quantity-based code,” the ministry said.
The decision came shortly after a ministry-commissioned study conducted by the Korea Institute of Public Finance (KIPF).
Under the quantity-based tax code, the study said, the price of a 500-milliliter can of beer will be lowered by as much as 363 won while that of imported beer will increase by 89 won.
According to the National Tax Service, imported beer accounted for 18 percent of the domestic market in 2018, up from 4.4 percent in 2013, while domestic beer's market share fell to 82 percent from 95.6 percent during the same period.
Local producers are welcoming the move.
“It is a measure long overdue,” an Oriental Brewery (OB) official said.
“We will be able to compete in the market with the only variable now being the quality of our product, not the price, something we have been unable to control for decades.”
Imported beers have been sometimes sold at a lower price than in their country of origin, in what is seen as a result of a “legal tax loophole,” the discretion to report the import price with the tax authorities here as they see fit.
“The market has been designed to unfairly favor imported beers, but no longer will they be able to gain a competitive edge. We will set strategies that best help our business now,” the official said.
Following the revision, local breweries will stop seeking relocation of manufacturing facilities overseas as a cost-saving measure.
“We do not have incentives to do that. Rather, the facilities we moved earlier can be relocated back here,” he said.
OB is considering moving its manufacturing facilities of Budweiser, an American-style pale lager, and Belgium's Hoegaarden back to Gwangju.
“We moved the facility to the U.S. and Belgium in 2017 from Gwangju. Now that the law is set to change, we will review the plan,” the official said.
Also welcoming the decision is the Korea Craft Brewers' Association, which accounts for 4 trillion won ($3.4 billion), or 1.2 percent of the beer market here.
“We see a great opportunity to compete in the market now,” an official from the association said.
“Cans sold at around 3,000 won or 4,000 won will see a price cut of about 1,000 won, while those sold at around 10,000 won will see a greater drop.”
With a more “leveled” playing field, more effort will be put into focusing on quality, the small market player said.
“We take great pride in consumer reviews that highly assess our products. We think it's an opportunity to win more consumers,” the craft beer official said.