[The Fountain] Taxing tax on alcoholic beverages
CHOI HYUN-JOOThe author is a stock market news reporter of the JoongAng Ilbo.
“Gukseonsaengjeon” by Lee Gyu-bo (1168-1241) from the mid-Goryeo Dynasty features dozens of alcoholic beverages, including ehwaju, jaju and papaju. The liquor culture of Korea is rooted in the home-made gayangju, and the taste and aroma varied depending on the skills of the liquor maker.
Alcoholic beverages began to be taxed in the 1900s. After the signing of the Japan-Korea Annexation Treaty of 1905, Japan enacted the first “alcohol tax act” in 1909 to make huge profits from liquor production. Liquor makers needed to get licenses to produce alcohol by meeting the requirements for different types of liquor: the facility, method, ingredients and volume.
In 1916, Japan promulgated the Alcohol Tax Order with the objective to extinguish homemade alcohol. “Homemade liquor cannot be given or sold to others,” and “If the maker of a homemade liquor dies, the heir must not produce the liquor.”
Violators were subject to a fine of up to 2,000 won. At that time, an 80-kilogram (176-pound) sack of rice cost 10 won. In 1916, there were 360,000 home breweries, and by 1932, only one remained. Instead, Japanese-style rice wine made by diluting ethanol imported from Japan, called jujeong, were distributed.
In 1949, the government of the Republic of Korea enacted a standard volume-based liquor tax law, following the Japanese liquor law, and when the 1950-53 Korean War broke out, the “grain protection ordinance” was declared. All liquors made with rice, other than Japanese-style rice wine, became illegal. In 1967, the taxation system was converted so that alcohol would be taxed not based on the volume but by the type.
The current Korean liquor tax system is still based on the law created by Japan. Seventy-two percent of the factory price of distilled liquor — such as soju, whiskey and brandy — is tax. On top of this, 30 percent of the tax must go to education, and 10 percent is the value-added tax.
As a result, the factory price of a bottle of soju becomes 1,111 won even though the original cost for manufacturing is just 500 won. In most countries, as the tax is based on the ethanol content, a higher tax rate is applied to those with a higher alcohol content for the same volume.
The government plans to raise the alcohol tax from April. The tax on beer, which is considered the “commoner’s liquor” along with soju, will rise by 3.75 percent. As the liquor industry shows signs of raising the factory price, Deputy Prime Minister for Economic Affairs Choo Kyung-ho said, “Just because the tax was increased, why should the liquor price go up that much?”
His argument is quite questionable. Does that mean he didn’t think the price would rise when raising the tax? I wonder if he really wants to increase tax revenue for the government while forcing companies to cut their profits.
with the Korea JoongAng Daily
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