Japan: New beer tax comes into effect

Today, new beer taxes come into effect in Japan which will also affect consumption of beer and other alcoholic beverages in the medium to long-term.

Taxes for regular beer and sake were lowered as of October 1, 2020 by JPY 7 (USD 0.066) and JPY 3.5 (USD 0.033) per 350 milliliters, respectively, while taxes for so-called third-category quasi-beer and fruit-based alcohol, such as wine, were increased by JPY 9.8 (USD 0.093) and JPY 3.5 (USD 0.033), respectively, for the same volume. The tax for happōshu remained unchanged.

According to the new scheme, 350 milliliters of beer are now taxed with JPY 70 (USD 0.66), while the same amount of happōshu is taxed with about JPY 47 (USD 0.45) and third-category beer with JPY 37.8 (USD 0.36).

The new taxation was announced in 2018 and will unify step by step the tax rates for beer, happōshu low-malt-beer and third-category no-malt beer for 350 milliliters to JPY 54.25 (USD 0.52) by October 2026. The next change is planned in three years in October 2023, when the tax for beer for 350 milliliters is lowered again by JPY 6.65 (USD 0.063) to JPY 63.35 (USD 0.60) and the tax for third-category drinks for the same amount is increased by another JPY 9.8 (USD 0.093) to about JPY 47 (USD 0.45) the same level as happōshu.

Experts believe that the unification of taxes will drastically change the beer landscape in Japan and will help to bring the Japanese beer market closer to other beer markets in the world.

So far, beer in Japan is taxed on the content of malt, rather than on the content of alcohol.  Japan's alcohol tax system divided beer-like malt beverages into four categories based on malt content: 67% or higher, 50 to 67%, 25 to 50%, and less than 25%. An alcoholic beverage based on malt was classified as beer if the weight of malt extract exceeded 67% of the fermentable ingredients.

In 2018, the minimum malt content of “beer” was lowered from 65% to 50% and the approved list of secondary ingredients was enlarged from malted only barley/wheat, hops, rice, corn, sorghum, potato, sugar/caramel, and starch to fruit, spices, herbs and flowers. Seaweed, oysters and bonito flakes (which is dried, fermented, and smoked skipjack tuna) are since then also allowed (inside.beer, 2.4.2018).

The planned unified taxation on beer, happōshu and third-category drinks eliminates the need to evade higher tax rates by lowering the malt content of a product. Thus, some experts believe that the consumption of beer will increase while consumption of happōshu and near-beer or quasi-beer products will decline and eventually lead to the disappearance of these categories.

However, the current sales trend points into another direction. A hike in consumption tax from 8% to 10% since October 1st, 2019 for most goods and services including alcoholic drinks has led people to consume lower-priced products including third-category beer-like beverages. In addition, the COVID-19 pandemic with its associated shut-down of bars, clubs and restaurants has favored the sale of third-category drinks. Many regular beers are predominantly sold in restaurants where they don’t compete with low-priced third-category drinks like in supermarkets. For example almost half of Asahi’s best-selling brand Asahi Super Dry is sold through commercial channels to restaurants.

Kirin published data for the first half year of 2020, showing that overall beer sales in Japan fell 26% by volume, while new category beer products increased 6%. Especially third-category beers, like Hon-Kirin have turned into a massive success — with sales increasing by as much as 40 percent some months this year (inside.beer, 17.5.2019).

"This odd tax system created a type of beer deflation, and it might be too late to get consumers used to cheap drinking to change their mindset,” Nomura Securities analyst Satoshi Fujiwara was quoted by The Japan Times. However, most experts believe that once there is a level playing field between beer, happōshu and third-category drinks, beer will be the clear winner.

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