Bring Back Hong Kong Wine Tax?

Next month sees the fifth anniversary of the dropping of import duty in its totality from 40 per cent to zero, (it had at the time been 80 per cent and was reduced by half in 2007), a move that undoubtedly has had a widely positive effect on the wine trade in Hong Kong and, arguably, all across Asia.

Hong Kong in itself is a duty free port and has traditionally only taxed alcohol, cigarettes and oil. The 2007/2008 reduction and subsequent abolishment of taxes on wine, notoriously perceived as a luxury good, was brought about by our strong economy, a lack of consumer objection and to increase yet further something the city has always been renown for – trade.

The final cut, enforced by Financial Secretary John Tsang was meant to create a more competitive wine market, making Hong Kong (in their own words) “The Wine Hub of Asia” allowing for more trade in the product and opening up the ability of other regions in Asia to use Hong Kong much like a huge bonded warehouse in terms of storage. It also allowed Hong Kong residents to ship their wines that were in storage or being held in bond in cities such as London without having to pay an import tax for the pleasure of drinking their own wines in the city that they live in.

Immediately after the cuts, much like the Gold Rushes of the 1800’s in America and Australia, companies suddenly overnight became wine importers with anyone who could get their hands on a wine making an effort to break into the potentially lucrative Hong Kong consumer and wholesale markets and, additionally, the even more potentially lucrative mainland China re-export market – that is, importing the wines into Hong Kong, storing the wines and looking for buyers on the mainland. 

Many companies who tried this (and many that tried to make it work in Hong Kong) have fallen by the wayside here with the red-tape getting the wines into China proving too much for some and the lack of consistency and quality making others here slowly go out of business.

The initial response from the public was that the savings importers were making on the dropping of the duties would be passed onto them. In some instances this was the case and in many is was most certainly not the case. These days, even with the dropping of the duty, the price of wines in Hong Kong are still heavily affected by the price of oil making shipping costs much higher than they were in 2008. This is coupled with the need and now greater understanding of better storage facilities to ensure the integrity and quality of the wines themselves which has seen the price of wine storage increase over the last five years adds more to the final price of the wine. The factor of exchange rates should not be lost on the consumer too with the Euro, Australian and New Zealand dollar rates all making the costs of buying wines from these regions more expensive for the importer. There is, of course, one factor that keeps the prices of some wines high that is not unique to this or any other city – greed.

Undoubtedly the dropping of duty has created more choice for the consumer in Hong Kong and this, arguably, substantiates somewhat the point that although the prices of wines have not gone down in relation (or more so at the same rate) to the tax cut, the choice of wines to the consumer at the same price points these days has drastically increased.

However, to its detriment, the cut in duty has seen a flood of sub-standard quality wines into the Hong Kong market and a plethora of wines that, arguably, should have never been exported from their country of origin. That is, the wine that tasted so good on a sunny afternoon on the Amalfi Coast, served in a jug and drank from a glass that no-where near resembles a wine glass as we know it (and that probably only cost a couple of Euro), is meant to be drunk on the Amalfi Coast and should not be shipped half way across the world. These wines are just not meant to travel.

The amount of “AOC Bordeaux” labels (my generic term for a cheap local wine) that cost two to three Euro retail in a supermarket in France that we now see in this country is staggering and, so too is the price that they are selling for. Wines such as these include labels from France, Italy, Spain and Portugal (as far as I can tell) but probably there are many others from other countries around town too.

So, what is my point to all this conversing about a topic that, in my view, should have been left to the annuls of history years ago? Well, I for one am in favour of bringing back a tax or duty on wine. Just a nominal one that is the same for every bottle imported into Hong Kong. I believe that a HK$20 tax or fee per bottle would be a good thing for the government coffers and would lead to a decrease in the amount of cheap sub-par wine in the city. In the UK, the tax on wine is a flat GBP1.81 (although the Chancellor there does his best to increase it twice a year) and this rate is regardless of the value of the wine itself. In my humble opinion, the implementation of a flat rate fee would be better for the Hong Kong consumer.

Why? Well, in my view, importers bringing in wine that is valued at less than the rate of tax would think twice before bringing these wines into the city. It would also mean that there is more transparency in terms of the understanding of the value of the bottle price for the consumer. Additionally, if prices were to increase, because of the nominal flat rate of duty per bottle it would mean that; a) it would be harder for importers (or retailers) currently operating at high profit margins to justify a price rise and; b) that importers and retailers would only be able to increase the price of the wine by the same rate as the nominal fee.

I was asked recently if I thought that other countries around Asia would follow suit and drop their tax on wine. The city/country in question was Singapore and I for one thought (and think) that it will never do such a thing. Why? My main reason for this belief is that there is a finite number of wine drinkers in Singapore (mainly due to its socio-religious views held there) and, with the city being situated next to countries with the same socio-religious stance on alcohol, there would be no benefit to the government in terms of trade to warrant dropping their tax.

Speaking earlier this week with a friend and fellow industry professional (if I may call myself that) the topic of Singapore and tax came up once again and his view was that exactly that the reason Singapore will not drop its tax is to prevent the same that has happened here since the tax cut. They want to prevent the influx of cheap below par wines and they (the government and the consumer) are happy with the high quality choice of wines that are currently available there.

I am fairly sure that if the government of Hong Kong were to propose a return a tax on wine there would be an initial public outcry but, if the justification was there and consumers and importers listened and agreed to their reasoning, it would be a short and swift outcry as, it would inevitably be in the consumers best interests. I do, however, highly doubt that this will ever come into force, although if it did, I for one would not be opposed to it – although I think that importers who distribute hundreds of thousands of bottles here per year might have some objection.