High tax takes fizz out of HK's economic boom

DPA , HONG KONG
Saturday, Mar 05, 2005, Page 9

"People in Hong Kong are starting to get into the habit of drinking wine. If you want to have more and more income for the Hong Kong government then you need to entice more people to drink wine."

Tommy Lau, general manager of Nathan Fine Wines

Champagne are popping around Hong Kong as the economy booms and property prices surge, if you believe what the financial analysts say.

Talk wine merchants, however, and they will tell you a different story. Despite the rosy economic outlook, fine wine sales are strangely flat and only one person in 100 is a wine drinker.

The key reason, they believe, is the punishing 80 percent tax which means that a bottle of red wine that costs US$10 in Australia costs nearly US$20 in Hong Kong.

While consumption of wine has surged strongly, sales in Hong Kong are stagnating, with the weak US dollar Hong Kong's currency is pegged to pushing Australian and European wine up higher.

Paul Liversedge, general manager of the 12-branch Watson's Wine Cellar chain, says that situation is unlikely to change while tax remains at current levels.

Finance Henry Tang (唐英年) delivers his budget speech on March 16 and Liversedge said there was a universal feeling across the industry that the time is right for the tax rate to be lowered.

"There are an awful lot of people in Hong Kong who still do not drink wine and I am sure they are put off by the prices," he said.

"Personally, I think the rate of duty should be reduced from 80 percent to 40 percent," Liversedge said.

"If tax was brought down, more people could afford to buy wine. Wine consumption would go right up," he said.

"You would have a lot of new customers who don't buy wine yet because it's too expensive. People who buy it now at lower prices would be able to afford to try better wines," he said.

Liversedge there had been rumors within the industry around Christmas that the tax on wine would be lowered in this month's budget but those rumors had since ebbed ominously away.

Linda Tsui, brand manager of speciality wine shop Boutique Wines said: "It is a hope rather than an expectation, but it might happen."

"In the past the government has increased and decreased wine duty," she said.

The case for decreasing the duty on wine became stronger as Hong Kong people travel more and see the same wines on sale for much less in overseas countries.

"The more people travel, the more they compare prices," Tsui said.

Prices the territory are so high that some wine lovers go to the trouble of getting an import license and shipping in their own wine to avoid the hefty tax.

"If you drink a lot of wine it actually makes financial sense to do that," Tsui said.

Even though the economy had improved, Tsui said, people were not willing to spend money on something if they considered it poor value.

"The economy this year is better than last year and people are willing to spend more but still people are not back to the way they were years ago in terms of their buying patterns," she said.

"People are cautious because they have seen what can happen in a downturn," she said.

Tommy Lau, general manager of Hong Kong importers and distributors Nathan Fine Wines, said: "My personal view is that it would be reasonable to reduce the duty from 80 percent to 60 or even 40 percent.

"Almost every day people are complaining about the high price of wine in Hong Kong. Many people compare Hong Kong with Singapore," he said.

"Singapore now is using a very simple tax system with a flat rate. They only charge S$3 [US$1.84] or S$4 per bottle," he said.

"In Hong Kong, if you buy a reasonably good wine with an import price of HK$200 [US$25.60] then you will need to pay another HK$160 to the government," Lau said.

"If we had the Singapore system you would only pay another HK$20 or so for each bottle. That is a huge difference," he said.

Lau "People in Hong Kong are starting to get into the habit of drinking wine. If you want to have more and more income for the Hong Kong government then you need to entice more people to drink wine.

"The best way to entice them is to reduce the price to make it more attractive," he said.