Zero’s not in it: Selection of Suntory chuhai at discount store
There’s no end to speculation as to how the consumption tax increase in April will affect the country, socially as well as economically. Last week, Tokyo Shimbun published a conversation between a college professor and one of its reporters about the effect on beer prices and, in turn, beer consumption, which last year declined for the ninth year in a row.
When the reporter asks the professor about this effect the professor feigns amazement that the reporter, who specializes in tax matters, didn’t know that “42 percent of the price you pay for your beer is already tax.” He goes on to explain that the beer tax is a holdover from the 19th century, when beer was considered a luxury item. Since then it’s become much more the drink of common people thanks to improved and cheaper refrigeration, but the government liked the revenues too much and maintained the tax structure for beer. To the professor’s thinking, the tax should be pegged to alcoholic content, and since beer’s is relatively low the tax should also be lower than it is for other alcoholic beverages.
It’s easy to get people to pay the tax since it isn’t indicated on the package or even at the place of sale, unlike the consumption tax. For the sake of reference, when you buy a 350-ml can of beer you pay ¥77 in tax. If you bought the same volume of whiskey you’d pay ¥129 in tax; shochu ¥70, nihonshu ¥42 and wine ¥28.
Basically, that means the consumption tax is levied on a tax, since the consumption tax is determined by the price that the wholesaler and retailer pays for the product, which, by the time they receive it, already includes the alcohol tax that is levied at the manufacturing stage. “When the government said they’d increase the consumption tax, people got angry,” says the professor. “But no one says anything about the alcohol tax, because people don’t notice it.” The reporter thinks that a “tax on a tax” violates the principle of taxation. The professor doesn’t disagree, and adds that beer accounts for half the revenues brought in by the alcohol tax. Because beer makers are large companies with responsible accounting practices, it’s easy for the Finance Ministry to collect the tax. The reporter says, “Why don’t manufacturers get angry?”
Actually, that’s why they started making the “beer-like” happoshu in the late ’90s. Because the ingredients used in happoshu are different from those that define beer for tax purposes, the beer tax doesn’t apply, and so makers could sell it at a much lower price. The government, of course, didn’t like that and eventually raised the tax rate for happoshu, too, though not as high as it is for beer (¥46 for a 350-ml can). Makers came back again with dai-san (third type) beverages, which use fermented soybeans for flavor instead of hops, and that got around the happoshu tax (¥28 for 350-ml). But while these new, cheaper brews outsold “real” beer handily, sales for all three beverages have still decreased over time, due to the shrinking population and a younger generation of consumers who don’t drink as much as their parents did.
In that regard, beer makers don’t see much of an impact of the consumption tax hike on beer and beer-like beverage sales; or, at least, they don’t see any point in trying to offset the hike. But they are modifying their lines of canned drinks that contain shochu, colloquially called chuhai. As the price of chuhai goes up thanks to the consumption tax, they are increasing the alcohol content. In fact, many companies have already added more alcohol to their chuhai products.
Kirin Beer increased its Hyoketsu Strong from 8 percent to 9 percent alcohol, and in April it will boost its Hon-shibori Lime chuhai drink from 6 to 8 percent.
Asahi Beer is already advertising its new Karakuchi Shochu Highball, which is 8 percent, in a bid to persuade normal fans of high balls — whiskey and soda — to switch to shochu and soda. That’s a full 5 percentage points higher than Asahi’s other chuhai, Slat, and both beverages will be sold for the same price. (Note: Slat is aimed at young women and the word suggests slimness, though an English speaker may be forgiven for thinking the name an unfortunate choice for such a target group.)
Suntory’s chuhai product, -196 Degrees C Strong, which enjoyed a 22 percent share of the chuhai market in 2012 thanks to its already hefty alcohol content, will be strengthened from 8 to 9 percent. The company told Asahi Shimbun that it expects sales to grow by 8 percent.
The target is middle-aged and elderly men, the main demographic for alcoholic beverages anyway. Makers think they will be attracted to the cost effectiveness, according to the Asahi, which means they can “get drunk more easily” for the same amount of money. In many countries, tax on alcohol is referred to as a “sin tax,” since it has a double-edged purpose: raising revenues on a product or service that may be harmful to society, on the one hand, and on the other checking consumption of the harmful product or service by making it more expensive.
This latter purpose doesn’t seem to apply in Japan, where alcohol companies have figured out a way to use the tax structure to their advantage. There’s no sin in that.