HONG
KONG - Financial Secretary Henry Tang is the toast
of the town after giving away HK$20 billion
(nearly US$2.6 billion) in tax rebates and rate
reductions in the city's budget. This includes
halving the 80% tax on wine and 40% tax on beer in
a move that has tipplers celebrating and the Hong
Kong Wine Society dreaming of a future in which
the city becomes a regional trading hub for fine
wines.
Tang has left himself open for
criticism, however: the finance chief happens to
be a collector of expensive wines, with half of
his stash stored in London. Previously, Tang had
said: "If I reduce the
duty, people will say it is
because I want to import my wines at a cheaper
price."
But, because there were so many
other goodies in his budget, Tang is unlikely to
take much flak for what could be seen as a
conflict of interest over wine duty. The finance
minister is basking in the glow of Hong Kong's
6.8% growth rate last year and projected growth of
4.5%-5.5% for 2007-08. He announced a budget
surplus of more than US$7 billion, 10 times
greater than he had forecast, by saying he wanted
to "share the wealth" with the community.
Indeed, there was something for just about
everyone in this budget: lower tax rates, tax
rebates, increased child allowances, reduced stamp
duty for properties, an extra month's social
security allowance for the old and disabled, an
increase of 1,000 civil service jobs - and more.
Not surprisingly, Tang is now one of the
most popular figures in the Hong Kong government,
with a 64% approval rating, according to a
University of Hong Kong survey taken after the
budget announcement. And Tang's boss, Chief
Executive Donald Tsang, no doubt hopes that the
financial secretary's give-away package will boost
his own already robust popularity as he prepares
to stand for re-election on March 25.
This
was Tang's fourth and probably last budget
message. He reportedly has his eye on Hong Kong's
second-most powerful position, chief secretary, in
the next Tsang administration. If he gets the job,
the city's liquor merchants hope that the next
financial secretary will go even further and
eliminate the tax on wine, beer and spirits
entirely. Spirits, not included in Tang's duty
reductions, are currently taxed at 100%.
For a long time, representatives of the
city's catering and tourist industries have
complained about high taxes on alcohol in a city
that is celebrated for its low-tax regime. The
health benefits of moderate wine consumption,
widely recognized in the medical profession, have
served to strengthen their case.
Given the
right circumstances, they say, Hong Kong could
become a regional wine center. This, in turn,
would open up the mainland, with its population of
1.3 billion, to the wonders of the drink and bring
the city far more revenue than punitive taxes on
drinkers. Last year, duty on wine added US$50
million to government coffers.
Allan
Zeman, who is largely responsible for building the
successful restaurant and entertainment district
known as Lan Kwai Fong, has persistently lobbied
the government to lower taxes on alcohol. His
group, Lan Kwai Fong Entertainments, announced
price reductions of 6%-7% for beer and 10%-15% for
wine immediately following Tang's speech and
celebrated over the weekend with happy hours that
lasted all night.
The 80-member Wine and
Spirits Industry Coalition has also vowed to
reduce prices.
Tommy Cheung, who
represents the catering sector in the Legislative
Council, has called for the complete abolition of
the tax. At the very least, he says, the city's
tax on alcohol should be in line with others in
the region. Macau imposes a 15%-17% duty on wine,
Singapore charges about $6 per liter and Japan
about $1.30 per bottle. On the mainland, wine duty
is 44%. Internationally, 20%-30% is the norm.
While wine merchants and restaurateurs
have been crowing about their budget victory, the
tax reduction probably won't make much difference
to the average tippler.
Little wonder past
financial secretaries have regarded wine as a
high-tax luxury item. Only an estimated 200,000 of
Hong Kong's population of 7 million drink the
stuff. And, even with the tax cut, it is still
very expensive habit to have.
The cheapest
bottle of wine one can buy off the shelf sells for
over US$6, but most connoisseurs would not deign
to drink it. In a restaurant, it's hard to find a
bottle for under $30 - and, again, that's the bad
stuff.
For example, a fairly unremarkable
California Chardonnay, Beringer 2005, whose retail
price in the US is under $8 a bottle, is on offer
at Watson's Wine Cellar in Hong Kong for $16.50.
In a restaurant, you might pay twice that amount.
A higher quality California Chardonnay of
the same year, Stag's Leap, sells at Watson's for
nearly $46 dollars, as compared to around $25 in
retail outlets in the US. The price of a bottle of
this wine at a Hong Kong restaurant would break
the budget of most of the city's diners.
So, even with the duty now halved, don't
expect a mass conversion to wine among Hong Kong's
drinkers, although beer sales should pick up. Wine
will remain a luxury item. Yes, tourists and
locals who drink it will be paying less, but the
price will still be too high by international
standards.
Those who stand to benefit the
most from the duty reduction are collectors like
the financial secretary, who maintain sizeable
wine cellars abroad and now can import bottles for
half the previous price. Unlike Hong Kong
restaurateurs, they don't have to figure in the
cost of middlemen and sky-high rents before they
open a bottle.
As for visions of Hong Kong
as a wine hub, that dream will have to wait. The
tax has varied over the past 14 years from 30% to
90%. The current reduction fits into this pattern
of rise-and-fall depending upon budget needs.
If, however, a future finance chief
appreciates wine even more than the present one
and decides to drop the tax altogether, that would
truly be something to drink about.
Kent Ewing is a teacher and
writer at Hong Kong International School. He can
be reached at kewing@hkis.edu.hk
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