With the government set to end the temporary 20% liquor tax reduction on draft beer starting next year, the burden on the liquor industry is expected to grow. The tax increase per glass of draft beer will be in the 100-won range, which is not large, but the industry is concerned less about the amount itself and more that another burden has been added amid continued domestic slowdown, weaker consumption and rising costs.
According to the liquor industry on the 14th, the Ministry of Economy and Finance recently announced a tax reform plan that ends the 20% liquor tax reduction on draft beer starting next year. As a result, the tax burden per 20ℓ keg (Keg) of draft beer is estimated to rise by about 5,000 won, or about 130 won per 500㎖ glass.
The industry sees the market environment as a bigger problem than the size of the tax hike itself. Recently, consumption in Korea's liquor market has been declining as after-work drinking gatherings shrink, drinking culture changes, and domestic demand weakens. On top of that, prices of raw and sub-materials, logistics costs and labor costs have continued to rise, leading manufacturers to focus more on cutting expense and defending profitability than on growth.
An industry official said, "Ending the tax support for draft beer alone is unlikely to reduce sales sharply or change the market dramatically," but added, "Compared with the structural shift of falling liquor consumption lately, it is a relatively small variable, yet it is true that it adds one more burden in a difficult situation."
In reality, major companies' beer businesses are also facing headwinds. Hitejinro(000080) turned to a loss in its beer business, and 롯데칠성, citing maintenance cost burdens and a portfolio reshuffle last year, exited the draft beer business by ending keg operations for "Kloud" and "Crush." It has since reorganized its beer portfolio around canned and bottled beer. Oriental Brewery likewise faces high marketing and promotion expense amid intensifying market competition.
The industry believes the end of tax support for draft beer is more likely to affect cost efficiency and business operating strategy than to lead immediately to price hikes. Because draft beer incurs additional expense for keg collection and washing, logistics and dispenser operations compared with bottled or canned beer, its cost burden is relatively higher.
A Hitejinro official said, "We are very disappointed that the draft beer liquor tax reduction sunset was included in the tax reform plan," and noted, "With the prolonged economic slump, the increased tax burden on draft beer that consumers enjoyed without much burden could dampen consumption." The official added, "Small business owners such as restaurants and bars that primarily sell draft beer are already facing a tough operating environment, so their cost burden could grow further, and manufacturers are also expected to shoulder additional burdens amid continued increases in raw and sub-materials, labor and logistics costs."
◇ Dining industry: "If we raise prices, customers fall; if we hold, profitability worsens"
Because most draft beer is consumed at dining establishments, self-employed owners of restaurants and bars will also be affected. A franchise dining industry official said, "The reduced tax rate on draft beer has helped us offer draft at relatively reasonable prices for consumers," and added, "If we raise prices, customers may decrease, and if we hold prices, store owners' burden may grow, so self-employed operators inevitably face a difficult choice."
Recently, as liquor consumption has declined, both liquor companies and self-employed owners are facing difficulties. According to the Ministry of Data and Statistics (MODS) household trend survey, in the first quarter of this year, nationwide average monthly household spending on liquor was 15,000 won, down 7.5% from a year earlier. According to the National Tax Service, domestic liquor shipments fell 17.3% over 10 years, from 3,808,000㎘ in 2014 to 3,151,000㎘ in 2024.
An industry official said, "The liquor market is in a tough spot with weak domestic demand and subdued consumption," and added, "The end of the special draft beer liquor tax reduction could act as an additional burden across the market."
Meanwhile, the National Assembly has bills pending that would extend or make permanent the draft beer liquor tax reduction. The liquor industry says it will monitor the outcome and review next year's pricing policies and business plans.