Hong Kong abolishes wine taxes: the impact on China?

By Jim Boyce

Hong Kong has abolished its wine (and beer) taxes and this will likely impact distributors and consumers in the rest of China. An excerpt from a Bloomberg article:

Hong Kong’s government abolished taxes on wine and beer after posting a record surplus, boosting efforts to turn the city into a wine-trading hub.

The tariffs will be abolished immediately, costing the city government HK$560 million ($72 million) in annual tax revenue, Financial Secretary John Tsang said today in his budget speech.

Sales by Hong Kong’s “wine-trading and distribution businesses” may rise as much as HK$4 billion due to the change, he said. About HK$55 billion ($7 billion) is spent on table wine in Asia excluding Japan, he said, citing industry estimates…

Scrapping the tax on wine may help Hong Kong become the world’s third-biggest hub for wine auctions after London and New York, Tommy Cheung, a lawmaker and chairman of the Hong Kong Wine & Spirits Industry Coalition, said in a phone interview before Tsang’s speech. One-fifth to as much as a quarter of the $200 million to $400 million of wine sold at international auctions is bought by Hong Kong residents, said Boris de Vroomen, who leads a venture in the city between Diageo Plc and LVMH Moet Hennessy Louis Vuitton SA.

The key point: the Hong Kong Government wants the city to be even more of a major wine trading hub. Also according to Bloomberg, Acker Merrall & Condit and Bonhams plan to use Hong Kong for their first wine auctions in Asia.

A few quick notes about how lifting the duty will affect the China market:
– There is an added incentive for people to hand carry (especially with expensive wines as the savings per bottle will be high) or smuggle wine from Hong Kong into China.
– Those based in China who regularly visit Hong Kong, or who live in Shenzhen, will suddenly see more value for their wine money.
More wine choice, including with more moderately priced wines, is likely to appear in Hong Kong and spill over into China.
China-based importers selling Grand Cru Bordeaux and other such wines will face stiffer competition from their Hong Kong counterparts.

In terms of the latter, China Briefing blog cites ASC’s Don St. Pierre: “[He] commented this afternoon that ASC would be fast tracking the opening of an office in Hong Kong, and expected the territory’s wine drinking to boom, especially at the premium end of the market.” In addition, “He did express concerns over possible problems with the smuggling of wines from Hong Kong into the mainland, and told China Briefing he would be leading a consortium of mainland wine distributors to the Chinese government to lobby for a similar reduction in wine duties in the PRC.”

See the full article.

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