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| A variety of imported beers are displayed at a convenience store, each priced 2,500 won for purchases of four. / Yonhap |
By Yoon Ja-young
The government move to revise the liquor tax is expected to face opposition from consumers who have been enjoying imported beer at relatively cheap prices.
The Korea Institute of Public Finance, a state-run think tank that assists the government to formulate tax policies, recently recommended the government revise the liquor tax in accordance to quantity instead of price. The government will determine whether to accept the recommendation by the end of this month. If it does, it will be included in the tax revision for next year.
While the revision would lead to fairer competition between local and imported beers, the announcement is irritating consumers who are concerned over the possible price hike.
"I've been enjoying talking with my wife over beer while watching TV every weekend," a consumer posted on an online bulletin board. "The government will be depriving me of a small joy in my life if it raises the beer price."
Currently, domestic beers are levied 72 percent liquor tax and other taxes on the sum of their manufacturing costs, as well as sales, marketing costs and profits. Imported beers, meanwhile, are taxed on the sum of their imported prices and tariffs. It was considered as a loophole in taxation since beer importers can report the import price as they see fit, regardless of prices in the country of origin. By lowering down import prices they report to the tax agency, they can lower taxes levied here. As a result, some imported beers are sold at lower prices here than in their home countries.
Local breweries thus have been complaining that the current liquor tax system is unfair. The Korea Alcohol and Liquor Industry Association estimates the tax gap between the two groups is as much as 20 percent. A bundle of four 500-milliliter cans of imported beers is often sold at 10,000 won ($8.90) here, while local brands like Cass and Hite are sold at 2,700 won per can. Some local breweries even chose to outsource their beer production overseas. For instance, Oriental Brewery has imported some of its Cass from an overseas brewery, as it can sell it at 2,365 won per can, far lower than 2,700 won produced here.
Thanks to price competitiveness, imported beers have been eating into the market. According to the National Tax Service, imported beers took 16.7 percent of the market last year, tripling from 2013 when they took 4.7 percent.
The revision is expected to pull up imported beer prices. According to Jung Chul, a professor at Seoul Venture University, if one liter of beer is taxed 728.3 won as suggested in a recent public hearing, imported beer will see a 29 percent rise in tax while local beers will see their tax burden drop by 12.8 percent.
Local breweries say the tax revision will encourage development of high-quality beer.
"Under the current tax system, those who develop quality beer will see worsening profitability since premium beers are levied higher taxes," a spokesperson for Korea Craft Brewers' Association said.
Industry analysts expect local breweries to benefit from the revision.
"While imported beers have contributed to the market by satisfying diverse tastes, the taxation led to unfair competition," said Cha Jae-heon, an analyst at DB Financial Investment.
"The revision will improve operation of local breweries. It is a rational change since it makes for fair competition."
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