Hong Kong plans to cut tax on spirits in bid to revive nightlife, say sources

HONG KONG - Hong Kong is planning to lower the amount of tax it levies on spirits, according to people familiar with the matter, as the Asian financial centre seeks to regain its edge as a premier destination for nightlife, dining and shopping.

The reduction is expected to be one highlight of Hong Kong Chief Executive John Lee’s policy address in mid-October, the people said, asking not to be identified because the deliberations are private.

Liquor that has an alcohol content of more than 30 per cent currently attracts a duty equivalent to 100 per cent of its value in Hong Kong – among the highest anywhere in the world.

One approach the government is considering is a tiered system whereby more expensive spirits would be taxed less, one of the people said. It is thought that that could boost spending on premium liquor among a higher value type of clientele while discouraging consumers to stock up on cheap drinks in a bid to also limit health risks, the person said.

Discussions around the spirits tax are not final and may still change, the people said.

Representatives for Mr Lee’s office did not respond to a request for comment.

If implemented, the move would mark Hong Kong’s latest effort to rekindle sales for restaurants, bars and retailers, all of which have been struggling with fewer tourists post the Covid-19 pandemic. There has also been a slowdown in domestic spending amid lacklustre property and financial markets. 

At the same time, the city is under increasing pressure to regain its relevance as a travel and shopping hub as it faces rising competition from metropolises in mainland China, as well as Singapore and Japan, where there is a

travel boom thanks to the weak yen.

Retail sales in Hong Kong fell 12 per cent in July from the year prior and are still 25 per cent down on 2018 levels, before Hong Kong’s economy was battered by years of political unrest and pandemic isolation.

While restaurant receipts for the second quarter were not so far below 2018 levels, sales for bars were down almost 30 per cent, making those types of establishments the worst hit.

The planned tax cut also reflects Hong Kong’s ambition to become a centre for spirits trade, capturing a bigger share of an industry that is estimated to have contributed US$730 billion (S$938 billion) to the global economy in 2022, including US$390 billion in tax revenue, according to a July report by the World Spirits Alliance.

Hong Kong in 2008 removed all duties on non-spirits-based alcohol drinks and saw strong growth in the wine trade the following year, with imports jumping 80 per cent to HK$3.2 billion, government data showed. More than 800 businesses related to wine sprang up in the following two years, including traders, retailers, restaurants, bars and logistics firms.

Total industry revenue meanwhile grew 30 per cent over two years to HK$5.5 billion.

Tax on spirits accounts for a relatively small amount of Hong Kong’s overall revenue from duties, estimated to be about HK$717 million (S$118.4 million) this financial year, or 5.6 per cent of the total, according to government data. BLOOMBERG