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Booze tax goes up in Malaysia

Consumers will now have to pay more for beers with a higher alcohol content.

There will be no cheers from drinkers now that a revised excise duty, calculated according to the alcohol level in beverages, has been introduced.

Coffeeshop and bar owners, already grappling with high operating costs, are bracing for a further cut in profits as a result of this new move.

The excise duty, which came into effect on March 1 – the first in 10 years, following three consecutive tariff hikes from 2004 to 2006 – simplifies the taxing of the beverages by basing it on the alcohol value per litre of each product.

This means beers with a higher alcohol level could see a price increase while beverages with less than 5 per cent alcohol content could become cheaper.

The news left a number of industry players and bar owners confused while some said the price hike would be low enough for them to absorb.

But others said they have to wait to see how their business fares before considering any rise in retail pricing.

Alcohol Consumer Rights Group Malaysia founder Deepak Gill said the price hike would be “easy to absorb” for businesses, with not much impact to the consumer or seller.

“From what I see, it hasn’t really gone up that much. In fact, for a couple of items, the price has gone down,” he said.

Despite that, Deepak contends that Malaysia’s taxes on alcohol are still “disproportionately high” and have caused such beverages to be seen as a luxury.

Malaysia’s excise duty on alcoholic drinks is the second highest in Asia and third highest in the world.

Connexion Group chief executive officer Kent Chua, who manages the Beer Factory, said he needed to think about how to strike a balance between keeping his customers happy and staying profitable.

“The hike is on lagers, that is Tiger beer, which accounts for 60 per cent of our beer volume. So that hike is significant because our margin has already been thinning across the years amidst rising business costs.

“We foresee challenging times ahead because the increase will further strain our already narrow margins. We will have to see to what extent we can absorb it,” he said.

Guinness Anchor Bhd managing director Hans Essaadi was concerned that this latest development would increase demand for illicit and unregulated alcoholic drinks.

“The state of the economy is having a significant impact on businesses and consumers, and this will make it more challenging for our industry,” he said.

The spirits and wines industry would also be affected by the new tax structure, though less so than the beer industry.

A spokesman from Moet Hennessy Diageo (MHD) Malaysia said there would be no immediate change in prices for their products.

MHD’s portfolio includes the best-selling Johnnie Walker whiskies, Hennessy cognac and Moet & Chandon champagne.

A spokesman for a local distributor said that not all spirits and wines would be affected.

“The entry-level products will probably see an increase in cost but the premium products should either get cheaper or stay the same price,” he said.

“For instance, wines below 100 (US$24) will probably increase in price while wines costing more than that will not. The same goes for spirits,” he said.

“Products with less alcohol will enjoy better tax relief but those with higher will be affected.

“Basically, the government is telling us that ‘If you want to drink something with more alcoholic content, you must pay more,’” he said.

Another distributor said he was worried that the new excise structure would affect the availability of lower-priced, entry-level wines.

“Distributors may stop bringing in low-end wines, such as those that cost less than 40 ringgit, and concentrate on products in the mid and high ranges.

“So in future, the cheapest wine you are able to get may be a mid-range one that is 40 ringgit and more,” he said, asking for anonymity.

(US$1 = 4.13 ringgit)

3 Mar. 2016

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