South Korea mulls tax hike on imported beer

South Korea is mulling an increase in taxes on imported beer to create “fairer competition” with local breweries, raising concerns among consumers who fear imminent price hikes.

The Korea Institute of Public Finance, a state-run think tank, has proposed to the government a revision on liquor tax, which could lead to beers being taxed on volume rather than price.

The South Korean government at the moment taxes domestic beers on the sum of manufacturing costs, sales, marketing costs and profits. Imported beer, however, is only taxed on its import price. This has created a “loophole”, says Korea Times, as importers can report lower import prices – not price of home country – to avoid higher levies. As a result, some imported beers are sold in South Korea at lower prices that that of their home countries, the newspaper wrote.

As a result, local breweries are voicing their complaints to the government over unfair competition, as the tax gap can be as much as 20%, according to the estimate by The Korean Alcohol and Liquor Industry Association. This has encouraged some local breweries such as Oriental Brewery to produce beers overseas rather than producing at home in order to cut costs.

Imported beer accounted for 16.7% of the market last year, up from 4.7% in 2013, according to the country’s National Tax Service. Korea’s beer imports totalled US$263 million in 2017, up 45% over previous year, based on USDA figures.

Local breweries also welcomed the proposed change, arguing it would also promote higher quality beer production.

“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, told the newspaper.

The Korean government will determine whether to accept the proposal by the end of this month. If accepted, it will be included in the tax revision for next year.

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