HONG KONG – Hong Kong’s leader has slashed a longstanding duty on premium spirits to boost the city’s competitiveness as a liquor hub, but industry players say deeper cuts are needed.

       Chief Executive John Lee, in his annual policy address on Oct 16, announced the reduction of a 100 per cent import duty on spirits with an alcohol content of more than 30 per cent to just 10 per cent for the portion priced above HK$200 (S$34).

       This means that a 100 per cent duty will still be paid on the first HK$200 of a spirit’s import price, although the duty drops to 10 per cent after that.

       The move comes ahead of a three-day International Wine and Spirits Fair from Nov 7, at which it is hoped the tax cuts will bring more business opportunities to those in the trade.

       The policy change “makes Hong Kong more competitive not only as a hub in the high-value liquor trade but also in its related industries, for example, auction houses for liquor bidding… the logistics service and also in the wine education business”, the Trade Development Council’s (TDC) deputy executive director Sophia Chong told the media on Oct 21.

       But the liquor industry argues that the new tax cuts do not go far enough to make a sufficiently significant difference to the city’s recovering economy, which has been battered in recent years amid changing consumption patterns.

       The change does not affect the duty on hard liquor with an import price of HK$200 or less. This means 85 per cent of the alcohol in the market will not enjoy any tax breaks.

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       Mr Lee said the new policy was aimed at striking a balance between stimulating trade and maintaining public health.

       But Mr Danny Wong, director at boutique liquor store The Bottle Shop in Sai Kung, does not see it making a big difference to his business. “After (Mr Lee’s) announcement, some customers had the misconception that the price of the spirits they buy will drop drastically. But in fact, most of the spirits that fall within the retail price range of HK$500 will most likely not see any price changes,” he told The Straits Times.

       Mr Wong said this was because the tax cut applies to the liquor price only at the point of import. So if a liquor’s import price is HK$200, its retail price would include its import price, the 100 per cent duty paid, as well as a slight markup for other costs including storage and local transportation expenses, coming up to around HK$500.

       “The tax cut affects only spirits of higher value… It may make it more palatable for people to buy premium liquor as gifts or for special occasions, but will not affect our sales of everyday spirits – which account for 70 per cent of our business,” he said, adding that alcohol taxes in other places like parts of Europe were “a lot more lenient”.

       Liquor taxes in mainland China, for example, fall between 15 and 25 per cent, while the tax on a typical bottle of liquor in Britain is around 64 per cent.

       “So having even lower taxes for spirits could help Hong Kong be better able to compete in the spirits trade internationally,” he said.

       Mr Devin Pun, chairman of Wine & Spirits Business Council at the European Chamber of Commerce in Hong Kong (EuroCham), said that while his council welcomed the policy change, “we are concerned it won’t release the alcohol industry’s full potential to boost Hong Kong’s competitiveness with neighbouring areas”.

       Neighbouring Macau, for example, imposes a “flat ad valorem tax of just 10 per cent and a modest specific tax of 20 patacas (S$3.20) per litre” on its spirits, he said.

       A recent EuroCham report noted that the market for premium spirits in Hong Kong was “already on the rise”, with millennials and Gen Z consumers, who make up nearly 40 per cent of the city’s population, “showing a clear preference for quality over quantity”.

       “Premium spirits form part of a menu of quality goods and services that are increasingly demanded by resident consumers and international tourists,” Mr Pun said.

       “If these demands can be catered for… this can lead to local economic benefits, including new local business opportunities and high value jobs, higher profit margins, and tax receipts in the hospitality and retail industry.”

       Lowering the tax threshold further to make premium spirits even more accessible to these consumers would “have a more concrete impact and help the government achieve its… objectives more effectively”, the EuroCham report stated.

       The tax cut reflects Hong Kong’s ambition to win a bigger slice of the spirits trade industry, which contributed an estimated US$730 billion (S$956 billion) to the global economy in 2022, including US$390 billion in tax revenue, according to Bloomberg.

       Spirits taxes now account for about HK$717 million – less than 6 per cent – of Hong Kong’s overall revenue from duties, government data showed.

       The new tax cut would lower that revenue by HK$200 million, local media reported, but the authorities are hoping to reap benefits from it similar to those gained from the scrapping of wine taxes in 2008.

       Hong Kong saw strong growth in the wine trade after it lifted all duties on non-spirits-based alcoholic drinks that year.

       The total value of wine imports rose 375 per cent from 2007 to 2023 while the total volume increased by 33 per cent.

       Hundreds of wine-related jobs and businesses including retailers, bars and logistics firms also sprang up in the aftermath.

       On the latest policy change, Trade Minister Algernon Yau said the government would monitor its impact and adjust it as needed. “The government had to strike a balance, and we thought the two-layer tax cut could do so… It lessened the medical sector’s concerns over promoting alcoholism, but it will hopefully boost the high-end spirit trade,” he said.