Hong Kong is battling to regain its coveted position of being a premier tourist destination for its nightlife after being hit by the Covid-19 pandemic. Its administration may announce tax cuts on liquor next month
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Reeling under the declining number of tourists since the Covid-19 pandemic, Hong Kong is planning to make spirits cheaper in its bid to regain its edge as a premier destination for nightlife, dining and shopping. Hong Kong is likely to reduce the amount of tax it levies on spirits, Bloomberg reported quoting people familiar with the matter.
This comes as the Asian financial centre seeks to regain its attraction among international tourists for the city’s nightlife. The new reduced taxes are expected to be announced in mid-October when Hong Kong Chief Executive John Lee makes policy announcements.
Currently, Hong Kong levies 100 per cent tax on liquor with an alcohol content of more than 30 per cent — among the highest anywhere in the world. The local government is said to be considering a tiered system — lower taxes for expensive spirits.
The move is aimed at boosting spending on premium liquor and attracting a higher value type of clientele. This is also expected to discourage consumers from stocking up on cheap drinks in a bid to also limit health risks.
Why make liquor cheaper
Drop in retail sales has worried the Hong Kong administration — falling 12 per cent in July compared to the same month last year. The overall retail sales are 25 per cent down compared to the 2018 levels — that is before political unrest and the Covid-19 pandemic hit Hong Kong’s economy. Bars are particularly hit hard, with retail sales down by almost 30 per cent.
Hong Kong removed all duties on non spirits-based alcohol drinks in 2008, boosting a strong growth in the wine trade in 2009. Imports jumped 80 per cent to $411 million that year. Hong Kong hopes the move it plans will give a similar fillip to the business.
Though the plan is not final yet, the Bloomberg report said, it comes as Hong Kong’s fresh move to beef up sales for restaurants, bars and retailers — all these businesses have been struggling since the pandemic curtailed tourist inflow.
Rising competition
The economic woes got complicated as Hong Kong has also seen a slowdown in domestic spending, particularly in property and financial market segments. In the post-Covid period, Hong Kong is also facing tough challenges from metropolises from mainland China, Singapore and Japanese cities, which have seen a tourism boom with the yen weakening considerably.
Data from the World Spirits Alliance showed that spirits trade contributed $730 billion to the global economy in 2022, including $390 billion in tax revenue.
More than 800 businesses related to wine sprung up in the following two years, including traders, retailers, restaurants, bars and logistics firms. Total industry revenue meanwhile grew 30% over two years to $706 million.
In Hong Kong, tax on spirits accounts for a relatively small amount of overall revenue from duties — less than six per cent. But it contributes to other business such as tourism, restaurants and hotels.
