Hong Kong, once a vibrant hub for nightlife, dining, and shopping, is reeling from the impact of the COVID-19 pandemic, which significantly reduced tourist numbers. In a bid to regain its position as a premier destination, the city is considering a bold move: lowering taxes on spirits.
According to Bloomberg, citing sources familiar with the matter, Hong Kong is likely to reduce its hefty spirits tax, currently at 100% for liquor with an alcohol content exceeding 30%. This makes Hong Kong’s tax one of the highest globally. The new, tiered system, expected to be announced in mid-October by Chief Executive John Lee, aims to incentivize spending on premium spirits, attracting a higher-value clientele.
The move is fueled by the alarming decline in retail sales, particularly in the hospitality sector. July saw a 12% drop in retail sales compared to the same month in the previous year, with overall retail sales down by 25% compared to 2018 levels, before the political unrest and pandemic hit the city’s economy. Bars have been particularly hard hit, with retail sales down by almost 30%.
Hong Kong hopes to replicate the success it saw in 2009 when it removed all duties on non-spirits-based alcohol drinks. The move led to a surge in wine imports, increasing by 80% to $411 million that year. This boost in the wine trade offers a blueprint for the potential impact of a similar strategy for spirits.
The plan, although not finalized, reflects Hong Kong’s determination to revive its hospitality sector, which has been struggling since the pandemic restrictions led to a drastic reduction in tourist inflow.
However, Hong Kong faces a challenging landscape. The city’s economic woes are compounded by a slowdown in domestic spending, particularly in the property and financial market sectors. Post-pandemic, Hong Kong is also grappling with intense competition from mainland China, Singapore, and Japanese cities, which have experienced a tourism boom due to the weakening yen.
The global spirits market, however, presents a compelling opportunity. The World Spirits Alliance reports that the spirits trade contributed $730 billion to the global economy in 2022, including $390 billion in tax revenue. In Hong Kong, while the spirits tax contributes a relatively small amount to overall tax revenue (less than 6%), it holds significant potential to fuel other vital sectors like tourism, restaurants, and hotels.
While the specifics of the tax reduction plan remain unclear, Hong Kong’s bold move signals a commitment to revitalize its tourism and hospitality sectors. By lowering taxes on spirits, particularly for premium brands, Hong Kong aims to attract high-spending tourists and boost retail sales, particularly in the hospitality sector. Whether this strategy will be successful remains to be seen, but it highlights the city’s determination to reclaim its position as a global tourism destination.
