South Korea has announced to alter its 50-year-old tax system for beer and liquor which so far discriminated locally produced products and has resulted in one of the highest beer import rates in the world. Currently 1 out of 6 beers in South Korea are imported.
The South Korean Ministry of Economy and Finance said on Wednesday that the liquor tax will be based on the amount of alcohol sold rather than on ad valorem calculations based on the sum of the manufacturing costs, as well as sales, marketing costs and profits. The proposal will be submitted to the National Assembly for approval in early September before enforcement next year.
The former system gave imported beer a price advantage of about 20 percent because importers could report arbitrary costs of their products regardless of prices in the country of origin. This lead even domestic companies like Oriental Breweries to produce at least part of their beers outside the country.
In addition, premium domestic beers are currently taxed higher than cheap beers which discouraged brewers in South Korea from selling high quality specialty beers.
The new system will tax domestic and imported beer brands equally 830.3 won (USD 0.7) per liter, which makes domestic beer slightly cheaper (- USD 0,015/l) but imported beer significantly more expensive (+ USD 0.10/l). As a consequence, import beers are very likely facing hard times in South Korea from next year on as the market will move to a more balanced import quota like in other countries.
“We expect strengthened competitiveness of Korea’s liquor industry following development of high-quality beer and rice wine and more options for consumers,” Hong Nam-ki, South Korea’s minister of economy and finance said.
The Korea Institute of Public Finance, a state-run think tank, had already last year proposed such a liquor tax revision but had hoped for a quicker implementation (inside.beer, 20.7.2018).