Korea changes tax system on beer

South Korea | The government has decided to change its liquor tax system for the first time in 50 years, shifting from a price-based to volume-based system.

The tax revision bill for 2020 will see the liquor tax levied on the amount of ABV, rather than on ad valorem calculations, which are based on the retail base price. The government thus hopes to redress tax imbalances between domestically-produced liquor beverages and imports.

The government plans to submit the bill to the National Assembly in September this year.

Local liquor companies have long griped that the current system – 72 percent tax on domestically-produced beer – gives imported beers an advantage. The ad valorem system takes manufacturing and marketing costs, and projected sales into account.

Meanwhile, the taxes levied on foreign beers only include the import price and tariffs.

Last year, the average tax for domestic beer brands was estimated at KRW 848 (USD 0.72) per litre, compared to KRW 709 (USD 0.60) per litre for imports. This helped imported beer brands more than double their market share in just three years – to 20.2 percent in 2018 from 8.5 percent in 2015.

Under the new system, both domestic and imported beer brands will be taxed KRW 830 (USD 0.70) per litre. Domestic brewers, both large and small, have applauded the move.

For the time being, the revised tax regime will only apply to beer.

However, observers are sceptical that the latest move will bring a big change to consumer trends, as the new system will not noticeably lower the retail price of domestic beer brands. Consumers, who are more sensitive to retail prices, will continue to purchase imported beers,” predicts Lee Oryoon of Euromonitor International.