The News

In what is a landmark change in policy, the Hong Kong Government have slashed the spirit alcohol duty from one of the worlds highest at a whopping 100% down to just 10% - this is a headline that seems too good to be true and it is in fact not the whole story.

While the duty rate has been significantly reduced, this reduction to 10% only applies after the first $200HKD (Approx £20) of value is charged at the current 100% duty. In practice this means a bottle of whisky imported at a value of $500HKD will pay 100% duty on the first $200 and 10% on the remaining $300. So your $500 bottle that previously cost $1000 to bring into market will now cost $730.

When applied to an old and rare whisky bottle the savings are significant. Let's look at a Springbank 30 year old, with an RRP of £875 ($8827 HKD) here in the UK, if this bottle was taken to Hong Kong by a fortunate collector they would pay 100% on that value $17,654 HKD (£1750) an eye watering premium. With the new duty rates the same collector would pay a much more respectable $9009 HKD (£893) - with 100% paid on the first $200 and 10% on the remaining $8627 HKD.

A bold move that appears to favour high-end and more valuable spirits.

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Why

Hong Kong has long been a major international trade hub for a wide variety of products and industry, including luxury tourism. It is seen as a gateway to Asia for much of the world and the territory has cemented itself as one of rich experience in food, culture and commerce, especially for the wealthy.

But the number of people visiting the territory has dropped in recent years as Hong Kong’s leader said he’d taken the unusual measure to “promote liquor trade” as part of a wider initiative to “explore new growth areas” for the territory, which is facing lower tourism numbers and foreign residents.

The territory’s decision to cut spirits taxes will shift the category in line with its approach to both wine and beer. Back in 2008 Hong Kong removed incumbent duties on wine, and has since become one of Asia’s key trade centres for the category.

Hong Kong has a resident population of over 7.5m people that swells by a further 30-40m people a year at current figures, where large number of tourists flock there is typically a thriving hospitality scene with hotels, restaurants and bars all catering for the transient masses. With one of the wealthiest economies in East Asia per capita and 13th in the world overall and the 7th largest port in the world it is a destination that would seem to be an ideal trade hub for high-end spirits.

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What it Means

Hong Kong has long had a love affair with Scotch whisky given its prestigious status and the connection to the UK. A bustling whisky scene with some of the best whisky bars in Asia and a thriving number of independent bottlers, will be rejoicing at the prospect of more competitive prices and new client potential.

The expectation is there will be an increase in demand for premium spirits which will in turn provide a boost to the Scotch whisky industry as a whole. If you already own a cask of whisky this is of course positive news as Hong Kong has always been a strong market, though this may see an increase in cask values again and see demand for strong brands in the region rise leading to less availability.

In market new opportunities for consumers to try a wider range of products at higher values, with increased affordability for high-end spirits and better commercial viability for aspiring independent brands.

There has long been a trend of Hong Kong residents crossing the short border into Shenzhen to enjoy dining and drinking in a more forgiving tax environment and the move to reduce the tax burden will start to make those journeys north of the border much less necessary. The hope being to counteract the lower tourism numbers that have yet to recover to pre-pandemic levels.

Though there are some that may feel some negatives, at least in the short term, with a large number of stock holding retailers having paid full 100% duties on spirit stocks. These whisky pioneers took the risk to bring rare and valuable high end spirits to Hong Kong and may now be stuck with considerable inventory that will soon be over the market value by potentially 80-90%.

If you are a current or aspiring owner of cask whisky, this move could prove to be a catalyst for increased demand and value for your whisky casks in a region where whisky has been ever popular.

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The Conclusion

In the long run this can only be seen a positive move for all stakeholders, consumers, producers and the territory itself. A much needed bump in trade will benefit the wider economy and could potentially lead to a place in the region as the go to whisky destination in Asia. The current duty rate has only accounted for 0.1% of total tax revenue in the past eight years, according to government data, which should be easily out-earned with this new boost.

We are certainly encouraged to explore import options into Hong Kong for our own range of independently bottled whisky products and those of our clients around the world.

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For advice on international whisky markets and cask spirits opportunities reach out to the Tailored Spirits team at info@tailoredspirits.co.uk