This tax’s for you

October 16th, 2009 by Philip Brasor & Masako Tsubuku

So many beer-like beverages, so little time

So many beer-like beverages, so little time

Last week, Prime Minister Yukio Hatoyama ordered the tax ministry to review the alcohol tax system, specifically in relation to beer and so-called beer-like beverages. The announcement immediately sent the major breweries into a tizzy, since the likely outcome of such a review will be a higher tax for “Number 3-type” (daisan) beverages, which are responsible for most of the profits that alcohol manufacturers have enjoyed in the past year or so.

Though Hatoyama’s Democratic Party of Japan’s manifesto didn’t mention beer, the party’s policy, according to the Asahi Shimbun, is to look at the possibility of pegging the beer tax to a beverage’s alcohol level, which is the way liquor taxes tend to be determined overseas. At present, daisan beverages and happoshu are taxed at much lower rates than beer, even though the alcohol levels of all three are comparable. If the DPJ does peg tax rates to alcohol levels, then the prices of all three beverages will likely become the same or close to the same; a situation that would essentially render daisan and happoshu meaningless, since the only reason they sell so well is that they’re much cheaper than beer. A 350-ml can of daisan, for example, is on average about ¥80 yen cheaper than an equivalent-sized can of beer.

Industry associations are not mollified by the fact that pegging the tax to alcohol would substantially lower the price of beer. Apparently, they don’t think that any attendant increase in beer sales would make up for the loss of daisan revenues that would result in an increase of the daisan tax. Beer consumption in general has been flat for several years, but in the past year sales for daisan have gone up 22 percent while those for happosho and beer have dropped 15.5 percent and 3.7 percent, respectively. More importantly, breweries have sunk a lot of R&D investment into daisan beverages in the last few years (evidenced by the flood of new brands that come out almost weekly) and if the price suddenly goes up they don’t think they can recoup those expenses.

In a way, it was always inevitable. Happoshu and daisan were developed specifically to take advantage of loopholes in the liquor tax law. Beer is defined as having a certain malt content, and the malt content of happoshu falls outside this range. Therefore, it avoids the high tax imposed on beer. When the government wised up some years ago and increased the tax on happoshu slightly, beverage makers invented daisan, whose content also falls outside the criteria set for happoshu. In terms of 350-ml cans, the beer tax portion is ¥77, the happoshu tax portion is ¥47, and the daisan tax portion is ¥28.

The thing is, most people who like beer would probably prefer drinking beer to happoshu or daisan, so any tax shift to alcohol content is seen as benefiting consumers. The brewers, however, count on people who just like to drink a lot, regardless of the taste. For them, the tax change is a big problem. Their only comfort for the time being is that the DPJ has other, more important things to think about.

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