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1、THE ECONOMIC CONTRIBUTION OF INTERNATIONAL SPIRITS INHONG KONGA REPORT FOR THE EUROPEAN CHAMBER OF COMMERCE IN HONG KONG JUNE 20241The Economic Contribution of International Spirits in Hong KongTABLE OF CONTENTSExecutive Summary1.Introduction2.The Alcohol Market in Hong Kong3.The Benefits of Premium

2、isation3.1 Premiumisation in Hong Kong3.2 Economic Benefits of Premiumisation3.3 Business and Employment Opportunities3.4 Supporting Government Objectives4.The Benefits of Specific Taxes4.1 Alcohol Taxation in Hong Kong4.2 Reforming Hong Kongs Excise Duties on Spirits Could Yield Substantial Economi

3、c Benefits5.International Spirits Economic Contribution5.1 The Economic Contribution of International Spirits in Hong Kong5.2 The Impact of Tax Reform on the Economic Contribution of Spirits6.Conclusion291115161721212528323536424523The Economic Contribution of International Spirits in Hong KongThe E

4、conomic Contribution of International Spirits in Hong KongThe Hong Kong alcohol market accounts for billions of dollars of revenue flowing into the hospitality,wholesale,and retail sectors annually.Beer accounts for close to four-fifths of alcohol consumption in the city by volume,compared to only a

5、round 5.4%for spirits.But the significantly higher value of spirits meant the segment accounted for 16.1%of Hong Kongs total alcohol sales revenue in 2022.This valuable segment is predominantly premium-priced international imports.THE LOCAL BENEFITS OF PREMIUMISATION Since the full reopening of its

6、borders in 2023,the Hong Kong government has sought to capitalise on the influx of international visitors and the return of consumer spending to stimulate the citys economic recovery,boosting spending in the hospitality and retail sectors.One key element of that strategy is ensuring a high quality a

7、nd wide variety of food and beverage options are on offer.And part of that offering refers to premium alcoholic beverages.The“premiumisation”of consumer preferences is a trend shaping the recovery of the hospitality and retail sectors.It describes the increasing tendency of consumers to trade up the

8、ir consumption choices and purchase more expensive,higher quality or premium products.This growing demand for premium goods and services is recognised as a major potential growth driver for Hong Kongs alcohol sector,too.Data from IWSR show that in 2021,the value of global alcohol sales rose by 9%in

9、real terms,compared to a 3%growth in volume in the same year,indicating a significant increase in the price paid per unit of alcohol.1There is an increasing preference amongst younger local consumers(i.e.,Gen Z and millennials)for more sophisticated and/or higher quality alcoholic beverage offerings

10、.And as the tourism sector recovers,international holiday-goers and business travellers from Hong Kongs main source markets are also demanding more luxurious experiences and premium offerings.The governments Tourism Industry Development Blueprint has the aim of“developing Hong Kong into a worldclass

11、 premier tourism destination with a focus on attracting high value-added overnight visitors”.2In the context of this strategy,success in nurturing the premium spirits segment and attracting high-value spending in tourism,hospitality,and retail industries will strengthen Hong Kongs ability to capture

12、 the economic opportunities the premiumisation trend offers.THE BENEFITS OF RESTRUCTURING THE EXISTING ALCOHOL TAX SYSTEM FOR SPIRITS Despite the opportunities presented by premiumisation,the tax structure established around spirits in Hong Kong is not designed for incentivising premium experiences.

13、Indeed,Hong Kong stands out for the 100%ad valorem excise tax it levies on spiritsone of the highest such rates in Asia.An ad valorem tax refers to a proportional tax charged on the value of a product,typically based on its retail,wholesale,or manufacturing price.In contrast,multinational institutio

14、ns,such as the World Health Organisation,recommend the use of specific excise taxeswhich in the context of alcohol are levied on beverage volume or alcohol content.Their rationale is that specific excise taxes are more effective at discouraging excessive alcohol consumption,have a smaller administra

15、tive burden,and provide more stable tax revenues.Specific taxes also work favourably with premiumisation trends.Because they are charged as a fixed tax amount,they are more likely to penalise cheaper alcoholic beverages over higher-priced,premium alcohol products,and thus disincentivise consumers fr

16、om trading down to cheaper alcoholic beverages.A rebalancing of the tax structure in Hong Kong could therefore create a tax environment more closely aligned with realising the benefits of premiumisation in the countrys hospitality and tourism industry.THE ECONOMIC IMPACT OF INTERNATIONAL SPIRITS IN

17、HONG KONG Our analysis has shown that international spirits play an important role in the premium alcohol sector in Hong Kong.As such,the sale and distribution of international spirits creates a sizeable economic contribution to Hong Kongs retail and hospitality sectors,encompassing local restaurant

18、s,bars,retail stores,hotels,and more.Oxford Economics was commissioned by the European Chamber of Commerce in Hong Kong(EuroCham)to assess the size of this economic footprint.We estimate that the sale and distribution of international spirits contributed HKD 1.4 billion to Hong Kongs gross domestic

19、product(GDP)in 2023,representing an increase of about HKD 0.3 billion since 2022.This economic footprint supported a total of 5,200 jobs in 2023,with HKD 1.3 billion in tax revenues generated through the sale and distribution of international spirits.1 IWSR,“Global beverage alcohol rebounds,with val

20、ue reaching US$1.17 trillion”,2021.2 Hong Kong Tourism Board,“Hong Kong:The Facts,Tourism”,2023.EXECUTIVE SUMMARYHKD 1.4bnTotal contribution to GDP supported in Hong Kong in 2023.5,200Total jobs supported in Hong Kong in 2023.HKD 1.3bnTotal tax revenues supported in Hong Kong in 2023.4The Economic C

21、ontribution of International Spirits in Hong KongThis economic contribution has been achieved despite the large hurdles the spirits industry faces from Hong Kongs ad valorem-based tax policy.A reform of spirits taxes in Hong Kong could amplify the economic impacts that international spirits deliver

22、to Hong Kong,as evidenced in a 2019 study conducted by researchers from the Chinese University of Hong Kong on the economic benefits of a spirits tax reform.According to the study,moving to a specific excise tax structure would significantly boost consumer spending on spirits in Hong Kong.This in tu

23、rn could promote the vibrancy of the local spirits market and enhance Hong Kongs position as a leading spirits hub in Asia.CONCLUSIONThis report demonstrates how rebalancing the tax structure on spirits towards a specific tax system could enable Hong Kong to benefit further from the economic contrib

24、ution of the international spirits industry,whilst potentially providing a more effective tax policy instrument.Following the severe shock to the tourism-facing sectors from social distancing and border closures during the pandemic,the city is rebounding.Increasing tourism and traveller arrivals,alo

25、ngside a more conducive policy environment for providing the goods and services they demandwhich are often in the premium categorycould enable further growth in the economic contribution of the international spirits in the future.The success of the wine industry in Hong Kong,amongst other internatio

26、nal examples,is an example of the economic value that can be unlocked with certain excise tax reform.Discourageexcessivealcoholconsumptionmore efectivelyEncouragethepremiumisationtrendSmalleradministrativeburden andmore stable tax revenuesBoost theeconomiccontribution ofthe downstream sales of spiri

27、tsglobalalcohol salesincreased by9%salesvolumegrew by only3%THE ECONOMIC CONTRIBUTION OF INTERNATIONAL SPIRITSIN HONG KONG HONG KONGIn2021the value ofwhilstPREMIUMISATIONPremiumisation describes the broad trend of consumers trading up in their consumptionchoices,and choosing to spend their money on

28、more premium goods and services.Rebalancing to a specific excise tax wouldalso boost the economic contribution of thedownstream sales of spirits:Increase the variety of spirits available at morereasonable pricesPromote higher quality drinking and diningexperiences for locals and touristsCreates more

29、 opportunities for the spirits trade,tourism,gastronomy,bar,events,and auction sectorsTHE BENEFITS OF RESTRUCTURINGSPIRITS EXCISE TAXExcise Duties on Spirits in Hong KongHong Kong levies a 100%ad valorem excise tax rate on spirits,one of the highest rates in Asia.Excise taxes as a share of manufactu

30、ring price of spirits by countries*Rebalancing to a specific excise tax would bring clear benefits110%100%72%65%20%LaosHong KongSouth KoreaVietnamCambodiaTravel and tourism spending:HKD1.3bntax revenuein 2023Tax:Total Economic Impact of International Spirits:Jobs:GDP:GDPHKD1.4bnJobs5,2001.2bn0.2bn0.

31、1bn4,800100200Travel and tourismspending will be15%larger in 2025than in 2019WholesaleRetailHospitality*The selected Asian countries for comparison all levy a pure ad valorem tax on spirits.*Figures may not sum due to rounding.The Economic Contribution of International Wine and Spirits in ASEANThe E

32、conomic Contribution of International Wine and Spirits in ASEAN9The Economic Contribution of International Spirits in Hong Kong1.INTRODUCTION3 IWSR,“Premiumisation surged during Covid,will it continue?”,2022.The Covid-19 pandemic created a severe shock to the economy of Hong Kong,which is defined by

33、 its international openness and its status as a major travel and business hub for Asia.Social distancing measures and the closure of borders disrupted the activities of the myriad of restaurants,bars,pubs,retail stores,and hotels that form a key part of the social and economic fabric of the city.Hon

34、g Kongs GDP contracted in in 2020 by 6.5%,and by 2023 it was still 1.1%below 2019 levels,in real terms.Reopening has brought vibrancy back to the citys economy,with the return of international visitors fuelling a revival in tourism and travel spending.However,challenges remain in attracting leisure

35、and business visitors back to the city,in the face of stiffening competition and shifting travel preferences.The Hong Kong authorities have made their intention clear to attract high value visitors,and to stimulate demand in the citys hospitality and retail sectors.Success will depend on providing a

36、 competitive and compelling proposition to travellers,which includes high quality and varied food and beverage offerings.Alcoholic beverages are one important component of that mix,in particular spirits,which are in demand as consumers seek higher value,higher quality experiences.This trend is known

37、 as“premiumisation”and is described by alcohol industry analysts,IWSR,as a key driver of growth in the coming years:“Over the past few years,growth within the beverage alcohol industry has arisen mainly from people spending more money on better quality beverages,less often”.3Oxford Economics has bee

38、n commissioned by the European Chamber of Commerce in Hong Kong(EuroCham)to explore the economic contribution sales of international spirits make in Hong Kong.We analysed the channels through which the sales of spirits create value in the Hong Kong economy and quantified the contribution to GDP,jobs

39、,and tax receipts.We provide context on the importance of the premiumisation trend in Hong Kong,and on tax policies in the city which impact on this trend.The report is structured in four parts.In chapter 2,we assess the alcohol market in Hong Kong and the role of international spirits within this m

40、arket.In chapter 3,we analyse the trend towards premium alcohol products and explore what the premiumisation trend means for Hong Kong.In chapter 4,we provide an overview of the current tax policies on spirits in Hong Kong and discuss the merits of reforming these policies.In chapter 5,we quantify t

41、he size of the economic footprint of downstream sales of international spirits in Hong Kong in recent years.11The Economic Contribution of International Spirits in Hong Kong2.THE ALCOHOL MARKET IN HONG KONG4 Statista,“Alcoholic Drinks Hong Kong”,2023.5 HKTDC Research,“Wine Industry in Hong Kong”,202

42、3.While the alcohol market in Hong Kong is dominated by beer and wine,international spirits form a small,niche segment.Consumers spent HKD 18.1 billion on alcohol in Hong Kong in 2022,4 equivalent to around 23 million nine-litre cases,according to data produced by IWSR.The market is dominated by bee

43、r,which made up 78.6%of the beverage alcohol sales by volume in 2022(see Fig.1).Wine is the next largest segment,at 14.7%,followed by spirits at 5.4%,cider at 1.0%,and ready-to-drink beverages(RTDs)at 0.3%.There is very little spirits production in Hong Kong meaning most spirits in Hong Kong are imp

44、orted,with the exception of a few national spirits and some local brands of gin.5 Import duties on liquor with an alcoholic strength of more than 30%by volumeincluding spiritsare levied at 100%.This stands in stark contrast to the wine sector,for which all duty-related customs and administrative con

45、trols were removed in 2008,paving the way for Hong Kongs emergence as a prominent hub for wine trading and distribution in the Asia Pacific region.Source:Oxford Economics.IWSR.Fig.1:Total volume of beverage alcohol by category,Hong Kong,2022Beer78.6%Wine14.7%Spirits5.4%Cider1.0%RTDs0.3%of total beve

46、rage alcohol12The Economic Contribution of International Spirits in Hong KongSales of spirits are heavily concentrated through off-trade premises in Hong Kong,which refer to products consumed somewhere other than the point of sale.This typically represents retail stores,which account for the majorit

47、y of spirits sales volumes.The pandemic pushed sales volumes of spirits further towards off-trade premises as consumers increasingly consumed alcohol in their own homes due to social distancing measures and the closure of hospitality venues.Indeed,between 2019 and 2022,off-trade sales volumes of spi

48、rits grew by 42.4%,in stark contrast to a 43.5%fall recorded by the on-trade over the same period(see Fig.2).As the post-pandemic recovery continues,this trend is expected to reverse to a certain extent,as tourists return and residents revert to pre-pandemic habits of socialisation.30507090110130150

49、201720182019202020212022Index(2019=100)On-premiseOf-premiseSource:Oxford Economics.IWSR.Fig.2:Hong Kong sales volume of spirits,by channel,2017 to 202215The Economic Contribution of International Spirits in Hong Kong3.THE BENEFITS OF PREMIUMISATIONTotal global sales of beverage alcohol were worth US

50、D 1.6 trillion(HKD 205 billion)in 2023,recovering to the pre-pandemic sales value of 2019.6 This is despite an 8%fall in the volume of sales,which implies growth in the average price per unit of alcohol being consumed.7 According to the IWSR,the volume consumption of beverage alcohols in the“premium

51、-and-above”price bands(defined by IWSR as brands with prices over HKD 280 per 70cl bottle of spirits)in the first half of 2023 was 11%higher than for the same period in 2019.8 A trend towards premium products,known as“premiumisation”,can be seen clearly in spirits sales.In 2023,global volumes of spi

52、rits sold decreased by 0.7%compared to 2019,whilst the value of those sales rose by 9.4%in the same period,reflecting a move towards more premium spirits.Looking forward,the value of global spirits sales is expected to grow by 18.0%from 2024 to 2028,outpacing the volume growth of 2.9%in global spiri

53、ts over the same period.9In this chapter we explore what impacts the premiumisation trend can deliver in Hong Kong.6 Statista,“Alcoholic Drinks Worldwide”.2024.7 Ibid.8 IWSR,“Has premiumisation stalled?”,2024.9 Statista,“Revenue of the spirits market worldwide from 2018 to 2028”,2024;Statista,“Volum

54、e of the spirits market worldwide from 2018 to 2028”,2024.1617The Economic Contribution of International Spirits in Hong KongThe Economic Contribution of International Spirits in Hong KongSource:Oxford Economics.IWSR.Fig.3:Spirits sales value in Hong Kong,by price band,2017 to 2022931902877894872832

55、2229233722041733203821622017201820192020202120220500100015002000250030003500HKD,millions,realStandard-and-belowPremium-and-above3.1 PREMIUMISATION IN HONG KONGIWSR data suggests that the price per unit of spirits consumed in Hong Kong increased in real terms by 2.1%between 2017 and 2022.This suggest

56、s that even though consumers in Hong Kong are cutting back their consumption of spirits,they are trading up their drinking choices and purchasing higher value spirits.Spirits priced in the“premium-and-above”price bands consistently accounted for the majority of the total sales value of spirits in Ho

57、ng Kong.The value of these premium-and-above spirits has been on an upward trend since declining on the outbreak of the pandemic in 2020 and is close to reaching the pre-pandemic level in 2022(see Fig.3).Sales of premium-and-above spirits are expected to grow across Hong Kong in the years ahead,due

58、to a combination of the tourism and hospitality recovery,and an increasing preference for quality over quantity by millennial and Gen Z drinkers.In Hong Kong,IWSR analysis suggests that sales volumes of premium-and-above spirits will be 20.8%higher in 2027 than in 2022.In that same period,sales volu

59、mes of standard-and-below spirits are only expected to grow by 10.9%.103.2 ECONOMIC BENEFITS OF PREMIUMISATIONInternational spirits producers are clearly serving a local demand for premium consumption;but they are also playing a role in facilitating the broader local economic impact premiumisation b

60、rings.Premium spirits form part of a menu of quality goods and services that are increasingly demanded by resident consumers and international tourists.If these demands can be catered for,sales of international spirits and other premium products can unlock spending across a wider range of activities

61、.This can lead to local economic benefits including new local business opportunities and high value jobs,higher profit margins,and tax receipts in the hospitality and retail industry,as illustrated in Fig.4.Source:Oxford Economics.Fig.4:How premium spirits deliver economic benefitsSupply-side benefi

62、tsBetter local business opportunitiesHigher value jobsMeeting demands of Gen Zand millennial drinkersCaptures premium consumption within Hong KongSupports retention of high skilled locals and business ownersAttracting high value-added touristsExpand consumer segments to include more afuent touristsG

63、enerate demand for nicheproducts and services Higher marginsHigher tax intakeGovernment objectivesPremiumSpiritsKey ingredient for growing premium hospitality and retail sectorsConsumption-driven growth to strengthen the economyValue creation in tourism-related industries10 IWSR,“Drinks Market Analy

64、sis Report 2023,Hong Kong”,20231819The Economic Contribution of International Spirits in Hong KongThe Economic Contribution of International Spirits in Hong Kong3.2.1 Meeting demands of millennial and Gen Z drinkersAs the worlds eighth richest nation in terms of median disposable income per househol

65、d,Hong Kong is a hub for premium goods and services.Premiumisation is a growing trend among Hong Kong consumers,with one-in-three Hong Kong consumers reporting they would rather buy fewer but higher quality goods.11 In Hong Kong,Gen Z and millennial consumers are also showing changes in preferences

66、for higher quality drinks.Gen Z and millennials make up nearly 40%of Hong Kongs population,12 and this demographic is represented even more strongly among tourists,constituting over two-thirds of inbound visitors.13 According to a study by Euromonitor,the demand for spirits in Hong Kong is largely f

67、uelled by younger drinkers who have shifted their taste towards more sophisticated and innovative drinks.14Gen Z and millennial consumers are thus the key segment driving the premiumisation trend in Hong Kong,as well as in Mainland China which is also Hong Kongs largest visitor source market.In 2023

68、,nearly eight-in-10 international visitors in Hong Kong were from Mainland China.15 The growth in consumer expenditure in Chinese urban cities has surpassed that in many developed countries,partly driven by Gen Z and millennial consumers willingness to pay a significant premium for good quality.16 G

69、lobally,Gen Z consumers in particular exhibit rising levels of moderation,veering away from conventional,high-volume alcohol options like beer.Instead,they are exploring novel and premium alcohol categories such as white spirit-based cocktails,liquors,and aperitifs.This pattern of reduced alcohol co

70、nsumption and a preference for premium beverages is also apparent in the preceding millennial generation.17 11 Euromonitor International,“Megatrends in Hong Kong,China”,2023.12 Census and Statistics Department,Population by Sex and Age Group,2023.13 Azira,“The Return of Tourists to Hong Kong Consume

71、r Behavior Insights”,2023.14 Euromonitor International,“Spirits in Hong Kong”,2023.15 Hong Kong Tourism Board,“Hong Kong Tourism Board Press Release:Visitor Arrivals in 2023”,2024.16 Euromonitor International,“How Chinas Urban Millennials and Gen Z Live and Spend”,2020.17 IWSR,“How is Gen Z approach

72、ing beverage alcohol”,2023.Source:Tourism Economics.Fig.5:Travel and tourism spending,in real terms,Hong Kong,2019-20250204060801001202019202020212022202320242025Hong KongIndex(2019=100)3.2.2 Attracting high value-added touristsTourism in Hong Kong was hit hard by the Covid-19 pandemic:total inbound

73、 spending fell,in real terms,from HKD 292.4 billion in 2019 to HKD 29.0 billion in 2020 and further to HKD 18.6 billion in 2021.18 According to the World Travel and Tourism Council,travel and tourisms contribution to the citys GDP fell from 12.1%in 2019 to 4.7%in 2022.19 There was also a severe impa

74、ct on travel and tourism jobs in Hong Kong,which fell by 13.5%from 2019 to 2022.20The revival of the tourism industry is poised to play a crucial role in Hong Kongs economic recovery.Forecasts by Tourism Economics,a specialist subsidiary of Oxford Economics,suggest by 2025 Hong Kongs travel and tour

75、ism spending will be 15%larger than in 2019,in real terms(see Fig.5).21 Such projections imply that international tourists are likely to spend more on travel and its related activities after a long period of travel lockdowns.To drive the revival of the tourism industry,the Hong Kong government has t

76、aken proactive steps to bolster funding support for tourism initiatives.Over successive budget cycles,there has been a steady increase in additional funding earmarked for the Hong Kong Tourism Board(HKTB)and other tourism-related bodies to implement such measures,rising from HKD 700 million in the 2

77、020-2021 budget to HKD 1.26 billion in the 2022-2023 budget.22 An additional HKD 1.09 billion in funding support was again extended to the HKTB in the 2024-2025 budget.23 18 Oxford Economics estimates.19 World Travel&Tourism Council,“Travel&Tourism Economic Impact 2023,Hong Kong”,2023.20 Ibid.21 Oxf

78、ord Economics estimates.22 Hong Kong 2020-2021 Budget,2020;Hong Kong 2022-2023 Budget,2022.23 Hong Kong 2024-2025 Budget,2024.2021The Economic Contribution of International Spirits in Hong KongThe Economic Contribution of International Spirits in Hong KongAttracting high spending visitors is key to

79、the development strategy for the tourism industry.The Tourism Industry Development Blueprint(TIDB),which guides the development of the industry,outlines a focus on diversifying Hong Kongs visitor source markets and attracting high value-added overnight visitors who would contribute more to the econo

80、my than a typical visitor.The government is also increasingly looking to upgrade the service quality of the tourism industry and its related sectors,with the aim of enhancing Hong Kongs status as a travel destination for meetings,incentives,conferences,and exhibitions(MICE)tourism,a regional cruise

81、hub,and the Events Capital of Asia.24In 2023,the tourism industry showed signs of recovery in line with the TIDB strategies,with substantial growth in the number of high value-added tourists such as MICE visitors,affluents,and Gen Z tourists.Notably,the number of MICE travellers rebounded to approxi

82、mately 70%of pre-pandemic levels,outpacing the leisure segment to emerge as the most rapidly recovering segment within the industry.25 MICE travellers,renowned for their substantial spending habits,represent a lucrative consumer demographic in Hong Kong.For instance,prior to the pandemic in 2019,the

83、 per capita expenditure of overnight MICE travellers exceeded that of other visitors by 23%.26 Gen Z and millennials who tend to fuel the premiumisation trend,also make up over two-thirds of Hong Kongs inbound visitors,with millennials representing nearly half of the visitor population.27 Almost a t

84、hird(31.7%)of Hong Kongs visitors also belonged to the affluent category,which underscores the rise in high value-added visitors and signals strong tourism revival.28 In addition,Mainland China retained its position as Hong Kongs primary visitor source market,with Chinese Gen Z and millennial touris

85、ts playing a crucial role in driving the premiumisation trend.29International spirits play a pivotal role in offering premium products and experiences to tourists visiting Hong Kong.The influx of affluent,younger travellers and MICE attendees presents an opportunity to extend the premiumisation mome

86、ntum.Research conducted by Barton on behalf of the International Luxury Travel Market(ILTM)revealed that 83%of luxury travel expenditure by Asia Pacific(APAC)travellers is allocated to food and beverages.30 Over four-fifths of this expenditure is directed towards formal dining establishments,signall

87、ing a preference for premium,upscale culinary experiences.Moreover,Chinese travellers constitute over a third of APAC travellers food and beverage spending in formal dining establishments,while high net worth APAC travellers also account for more than half the food and beverage expenditure from all

88、APAC travellers on formal dining.31Similarly,findings from the 2023 Global Business Travel Associations(GBTA)Business Travel Outlook indicate that APAC business travellers exhibit a strong inclination towards premium services.They allocate over a fifth of their trip expenses to food and beverages,co

89、mpared to 18%for European business travellers and 17%for Latin American business travellers.24 Hong Kong Tourism Board,“Hong Kong:The Facts,Tourism”,2023.25 Hong Kong Tourism Board,“Hong Kong Tourism Board Press Release:Visitor Arrivals in 2023”,2024.26 Hong Kong Tourism Board,“Hong Kong Tourism Boa

90、rd Annual Report 2019/20 MICE Chapter”,2020.27 Azira,“The Return of Tourists to Hong Kong Consumer Behavior Insights”,2023.28 Ibid.29 Euromonitor International,“How Chinas Urban Millennials and Gen Z Live and Spend”,2020.30 Barton and ILTM,“Asia Pacific and the Global Travel Recovery”,2021.31 Ibid.3

91、.3 BUSINESS AND EMPLOYMENT OPPORTUNITIES There is a strong community of aspirational restauranteurs,bartenders,and food and beverage entrepreneurs generating an environment for lucrative business opportunities in Hong Kong.It also provides a platform for knowledge transfer and skills development,in

92、aspects ranging from culinary arts to business management,which adds to the stock of skills in the local workforce.A total of eight homegrown bars in Hong Kong were on Asias 50 best bars list in 2023,with COA,a popular cocktail bar in Hong Kong,taking the winners spot in the list for the third conse

93、cutive year.32Additionally,the growth of auction houses such as Christies and Sothebys in Hong Kong has been catalysed by the premiumisation trend.APAC,and specifically Hong Kong,has emerged as a key auction centre,including for high-value,investment-grade premium wines and spirits.The region accoun

94、ted for 66%of Christies global millennial buyers in 2023,and Gen Z buyers from APAC also doubled in the same year.33 Sothebys 2022 Wine and Spirits Market report also stated that Asia buyers accounted for over a third of their spirits buyers,of which over 30%was from Hong Kong.343.4 SUPPORTING GOVER

95、NMENT OBJECTIVESSuccessfully capitalising on the premiumisation trend in Hong Kong is consistent with the broader strategic economic objectives of the government.Fostering development of high value-added services such as premium hospitality and retail can contribute to consumption-driven growth whic

96、h is recognised by the government to form a key part of continued economic development.35The TIDB underscores the need to attract more high value tourists to boost tourism and related industries.The Blueprint sets out to develop Hong Kong into a world-class premier tourism destination and ensure the

97、 sustainable development of the tourism industry.36 International spirits in the premium hospitality industry play a role in advancing these objectives,by complementing various tourism initiatives that the government has implemented in line with the Blueprint.Mega events and campaigns such as the Ho

98、ng Kong Wine and Dine Festival and Night Vibes Hong Kong initiative seek to revitalise areas of the economy reliant on international spirits to attract higher spending,namely the events industry and night-time economy.The continued development of the premium hospitality sector plays a role in Hong K

99、ongs broader strategy of capturing more economic value from the tourism market and successfully transitioning to a higher quality tourism model.In order to maximise the benefits from the premiumisation trend,the Hong Kong government should seek to build an accommodating business environment for prem

100、ium hospitality and retail.This may include examining areas of policy,tax,and regulation that impact upon these sectors,to ensure that Hong Kong is able to optimise social and economic outcomes.32 Hong Kong Tourism Board,“Hong Kong Takes Centre Stage At Asias 50 Best Bars 2023 As COA Claims Top Spot

101、 For Third-Year Running”,2023.33 Reuters,“Christies to open new Hong Kong HQ,sees growing Asian Gen Z interest”,2024.34 Sothebys,“Wine&Spirits Market Report”,2022.35“The Chief Executives 2023 Policy Address”,2023.36 Tourism Commission Commerce and Economic Development Bureau,“Development Blueprint f

102、or Hong Kongs Tourism Industry”,2017.“There is a large potential market for premium spirits and alcoholic beverages in Hong Kong,but it is underexploited as consumers somehow choose to buy from overseas and then bring back home,”says Jenny So,a general manager at Leung Yick wholesalers in Hong Kong.

103、The 100%excise tax in Hong Kong means many consumers purchase their spirits in duty free or from other countries,rather than in local retail outlets.Over the course of her 25-year career,Jenny has observed a growing popularity for more premium spirits in Hong Kong,especially for gin,single malt whis

104、ky,and other dark spirits.This trend became especially pronounced during the Covid-19 pandemic.According to IWSR data,the value of premium spirits sales grew,in real terms,by 17.6%from 2020 to 2021the main lockdown period.With border restrictions and social distancing measures in place,the strong sa

105、les of premium spirits during the pandemic were driven by the off-trade retail segment.“We saw quite a big jump in off-trade retail and online consumption,”Jenny recalls,describing a period of double-digit growth in sales through the Leung Yick platform,whilst the wider economy faltered.However,this

106、 trend reversed with the reopening of the Hong Kong economy in 2023.While on-trade spirit sales picked up,off-trade sales fell back.The post-pandemic trend is often attributed to consumers returning to bars and restaurants rather than entertaining at home,but Jenny believes the resumption of interna

107、tional travel was also a crucial driver.Hong Kong is one of the worlds most open economies,with a very outwardly mobile population,according to Jenny.She says customers are familiar with shopping overseas,and this applies to duty-free shopping for spirits.According to Jenny,the drop in Hong Kong spi

108、rits sales after the border-reopening reveals how much of this spending leak overseas due to Hong Kongs high excise tax system.“The effect is even greater for top-end,premium spirits,where the 100%tax makes a huge difference to overall price.”From Jennys perspective,there is a large potential premiu

109、m consumer base for spirits in Hong Kong but the high tax rate acts as a disincentive to purchasing locally.“Consumers are drinking premium spirits in Hong Kong,”Jenny says.“But the tax rate means it is difficult for Hong Kong retailers to compete with overseas sellers to meet their demand.”CASE STU

110、DY:JENNY SO25The Economic Contribution of International Spirits in Hong Kong4.THE BENEFITS OF SPECIFIC TAXES Alcohol products are typically subjected to two types of indirect taxesvalue-added tax(VAT)and excise tax.While VAT is a broad consumption tax,levied on most goods and services in each stage

111、of the value chain,excise taxes are targeted at specific products,and are widely considered an effective way to increase prices of alcohol products to account for the externalities caused by alcohol consumption.Excise taxes can be applied in two forms:Ad valorem excise taxes are levied on the value

112、of a product,referring to its retail,wholesale,or manufacturing price.Specific excise taxes are levied on the quantity of a product,which in the context of alcohol can be measured by beverage volume or alcohol content.“If the tax situation were changed,Hong Kong would have the opportunity to become

113、the spirit centre of Asia in the same way it has become with wine”,says Jeremy Stockman,Managing Director of Watsons Winethe largest fine wine retailer in Hong Kong.Jeremy first joined Watsons Wine in 2010 and has seen Hong Kongs alcohol market evolve,especially after the removal of all wine taxes i

114、n 2008.He describes the period following the wine tax reform as one of transformational growth in wine collection and consumption.As a highly open economy,home to many great wine collectors,the removal of duties increased the price competitiveness of wines in Hong Kong.Jeremy recalls the influx of n

115、ew foreign merchantssuch as Berry Brothers and Corney&Barrowjoining Watsons Wine in Hong Kong following the reform,along with a surge in overseas customers who sought the reliability and provenance of Hong Kongs wine offerings at a lower price.Having no wine duty makes for a very low barrier to entr

116、y for Hong Kong,and the city grew to become a centre of wine excellence.Watsons Wine also grew to become one of the citys leading wine importers,thanks to burgeoning demand for fine wines like Champagne and Burgundy.As the market has matured,Jeremy has observed a growing passion for and understandin

117、g of fine spirits,especially whisky and Cognac,amongst the citys wine connoisseurs.Spirits increasingly feature in many wine lovers collections,and there has been a proliferation in venues focusing on spirits offerings,such as cigar bars and private members clubs.Specifically,private wine clubs with

118、 ultra-premium offerings are one area where Jeremy sees growth potential for premium spirits.He cites a rise in new clubs in the cityone of which is 67 Pall Mall,a renowned private members club for wine lovers that is expanding into Hong Kongas a sign of spirits taking on a larger role in the hospit

119、ality scene.“Spirits were always supposed to follow wines in tax reform process,but the policy change never came through,”Jeremy says.Any resale of spirits in the market is exposed to a 100%excise tax,and this acts as a significant drag on the markets potential,despite the huge range of whisky optio

120、ns and the growth of spirits establishments in the city.One reform option would be to switch from an ad valorem tax based on the value of the product,to a volumetric tax that is levied on the alcoholic content.This would serve to incentivise the premium market surrounding high quality spirits sales.

121、“Looking at how the global spirits market is evolving,including the great whisky options emerging around the world,Hong Kong could establish itself as the number one spirits market,if that tax were taken away,”Jeremy says.CASE STUDY:JEREMY STOCKMAN29The Economic Contribution of International Spirits

122、 in Hong Kong28The Economic Contribution of International Spirits in Hong Kong110%100%72%65%20%LaosHong KongSouth KoreaVietnamCambodia0%20%40%60%80%100%Excise taxes as a share of manufacturing price of spirits,%4.1 ALCOHOL TAXATION IN HONG KONGHong Kong levies a 100%ad valorem excise tax on spirits,

123、one of the highest rates of ad valorem tax on spirits in Asia.This is in stark contrast to its tax policy for other alcohol products:any liquor with an alcoholic strength of less than 30%and wine have a 0%excise tax rate.Hong Kong is an outlier in its approach to spirits taxation.The tax burden on s

124、pirits in Hong Kong is notably much heavier than in other countries.For comparison,mainland Chinas excise tax rate for spirits is between 15%and 25%,while neighbouring Macau applies a rate of 10%plus USD 2.58(HKD 20.20)per litre to beverages exceeding 30%alcohol content.Among countries in Asia that

125、levy an ad valorem excise tax on the manufacturing price of spirits,Hong Kong ranks as one of the highest(see Fig.6).The high excise tax on spirits in Hong Kong poses a downward pressure on spirits consumption and may potentially affect Hong Kongs competitiveness as a trading hub for spirits.Rebalan

126、cing alcohol taxation away from ad valorem towards specific excise tax could bring significant benefits for Hong Kong.Work by leading international organisations,financial institutions,and academics have highlighted the benefits of the use of specific over ad valorem excise taxes for alcohol product

127、s.These can be considered in three central reasons,as follows.Source:Hong Kong Customs and Excise Department,Korea Legislation Research Institute,Laos News Agency,USDA Foreign Agricultural Service Global Agricultural Information Network,and Thu Vien Phap Luat Law Library.Fig.6:Excise taxes as a shar

128、e of manufacturing price of spirits by countries3737 Selected countries for comparison are the other Asian countries besides Hong Kong that also levy a pure ad valorem tax on the manufacturing price of spirits.4.1.1 Reason 1:Specific taxes discourage excessive alcohol consumption more effectively th

129、an ad valorem taxesThe World Health Organization(WHO)Technical Manual on Alcohol Tax Policy and Administration states that“specific taxes are more effective at reducing consumption and drinking initiation than ad valorem taxes.”38 Specific taxes can be applied principally in two ways:Via beverage vo

130、lume.This approach can be more effective in raising prices of cheaper alcoholic beverages,thereby lowering alcohol affordability,reducing drinking initiation,and curbing the binge drinking of lower-strength and lower-priced alcoholic beverages.Via alcohol content.This approach can be more effective

131、in reducing the consumption of highly concentrated alcoholic beverages and can be used to incentivise drinkers to substitute to beverages with lower or no alcohol content.Specific excise taxes are widely adopted by countries that impose national-level excise taxes on spirits.The WHO global report on

132、 the use of alcohol taxes in 2023 stated that alcohol content-based specific tax is the primary form of excise taxation applied to spirits internationally.Among the 148 countries levying excise taxes on spirits,62 utilise alcohol content-based specific excise taxes.On the other hand,volume-based spe

133、cific excise taxes are the most common type of excise tax imposed on beer and wine.39Evidence from other countries demonstrates that specific excise taxes on alcohol can lead to superior health outcomes compared to ad valorem excise taxes.A study that examined the health harms of alcohol consumption

134、 in 11 Southeast Asian countries found that countries with pure ad valorem taxes,such as Cambodia and Laos,had poorer health outcomes than countries like Sri Lanka,where a pure specific tax on alcoholic beverages was implemented.Out of the 11 countries,Cambodia and Laos recorded the two highest alco

135、hol-attributable deaths and disability-adjusted life years(DALYs)lost40 per 100,000 people in 2016.This corresponded with an increase in per capita alcohol consumption between 2010 and 2017 in Cambodia and Laos,by 39%and 50%respectively.In contrast,Sri Lanka which only uses specific taxation on alco

136、holic beverages,recorded the lowest alcohol-attributable deaths per 100,000 people among the 11 countries in the same year.41 Other studies support this finding and the quantified health benefits of transitioning from an ad valorem system to specific taxation.A study in Australia estimated that repl

137、acing the Wine Equalisation Tax,which is an ad valorem tax amounting to 29%of the wholesale value of wine,with a volumetric tax would reduce alcohol consumption by 1.3%and save AUD 820 million(HKD 4.3 billion)in health care costs.42 Similarly,another study in England on the impact of alternative alc

138、ohol tax and pricing options on health outcomes estimated that a strength-based volumetric tax of 0.22(HKD 2.14)per unit of alcohol would reduce harmful drinking more than a 4.0%ad valorem tax on alcohol.This is because heavy drinkers in lower socioeconomic groups consume a significantly large amoun

139、t of cheap alcohol that would be most affected by the volumetric tax.4338 World Health Organization,“WHO Technical Manual on Alcohol Tax Policy and Administration”,2023.39 World Health Organization,“Global report on the use of alcohol taxes”,2023.40 One disability-adjusted life years lost represents

140、 the loss of the equivalent of one year of full health,due to death or disabilities.41 Bundit Sornpaisarn et al.,“Alcohol consumption and attributable harm in middle-income South-East Asian countries:Epidemiology and policy options”,International Journal of Drug Policy,Vol.83,September 2020.42 Chris

141、topher M.Doran et al.,“Estimated impacts of alternative Australian alcohol taxation structures on consumption,public health and government revenues”,The Medical Journal of Australia,Vol.199,November 2013.43 Petra S.Meier et al.,“Estimated Effects of Different Alcohol Taxation and Price Policies on H

142、ealth Inequalities:A Mathematical Modelling Study”,PLOS Medicine,February 2016.30The Economic Contribution of International Spirits in Hong Kong4.1.2 Reason 2:Specific taxes encourage premiumisation,whereas ad valorem taxes penalise premium productsSpecific excise taxes reduce the incentives for con

143、sumers to trade down to cheaper alcoholic beverages,particularly in response to tax rate increases.Research by the International Monetary Fund stated that specific excise taxes had a higher price effect on cheaper products than on premium products.44 This is because specific excise taxes apply the s

144、ame tax amount to all beverages based on the volume or alcohol content,regardless of price.Consequently,this places a larger proportional tax burden on cheaper alcoholic beverages,thus reducing the incentive to switch away from more premium alcoholic beverages.A study that measured alcohol excise ta

145、xes as a percentage of retail alcohol prices in the UK found that the share of the specific excise tax out of the retail price of lower-priced gin was 8%higher than that of higher-priced gin,implying that the excise tax imposed a heavier tax burden on cheaper alcohols.45 A specific excise tax struct

146、ure therefore encourages producers to produce more higher-priced alcohol products.This can help to support the premiumisation trend,and the socioeconomic benefits that arise from this trend.Conversely,ad valorem excise taxes penalise premium products as they incentivise drinkers to trade down to che

147、aper alternatives,especially when the tax rate is high.As ad valorem excise taxes are charged on beverage prices,the tax amount will grow in line with alcoholic beverage prices.This means taxes are greater for higher-priced premium products,which may lead to a larger supply of low-priced alcoholic b

148、everages in response to more consumers trading down from high-to low-priced alcoholic beverages.4.1.3 Reason 3:Specific taxes have a smaller administrative burden and provides more stable tax revenuesFor governments,specific taxes offer advantages over ad valorem tax through the ease of administrati

149、on.Specific taxes are not based on alcohol prices,hence are easier to administer as the tax amount does not require any verification,calculation,forecast,or audit of prices.46 On the other hand,ad valorem taxes impose valuation difficulties on tax administration,as additional procedures are needed t

150、o ensure that alcohol prices are not manipulated by producers to become cheaper in order to reduce the tax amount charged.Specific excise taxes provide governments with a stable flow of tax revenues.Quantities of alcohol purchases tend to change more slowly than the amount spent on alcohol purchases

151、,therefore taxing based on quantity can provide a more stable and predictable flow of tax revenues.Indeed,a study examining the economic implications of modifying alcohol taxation in Australia estimated that replacing the ad valorem Wine Equalisation Tax with a volumetric tax would increase taxation

152、 revenue by AUD 1.3 billion(HKD 6.7 billion)per year.47 44 Mario Mansour et al.,“How To Design Excise Taxes on Alcoholic Beverages”,International Monetary Fund How To Note,Vol.2023,Issue 004,December 2023.45 OECD,“Consumption Tax Trends 2022:VAT/GST and Excise,Core Design Features and Trends”,2022;A

153、nh P.Ngo et al.,“Alcohol Excise Taxes as a Percentage of Retail Alcohol Prices in 26 OECD Countries”,Drug and Alcohol Dependence,Vol.219,February 2021.46 Mario Mansour et al.,“How To Design Excise Taxes on Alcoholic Beverages”,International Monetary Fund How To Note,Vol.2023,Issue 004,December 2023.

154、47 Christopher M.Doran et al.,“Estimated impacts of alternative Australian alcohol taxation structures on consumption,public health and government revenues”,The Medical Journal of Australia,Vol.199,November 2013.3233The Economic Contribution of International Spirits in Hong KongThe Economic Contribu

155、tion of International Spirits in Hong Kong4.2 REFORMING HONG KONGS EXCISE DUTIES ON SPIRITS COULD YIELD SUBSTANTIAL ECONOMIC BENEFITSSwitching Hong Kongs position on spirits to a specific tax regime could have positive economic impacts.A 2019 study conducted by researchers from the Chinese Universit

156、y of Hong Kong(CUHK)estimated that rebalancing excise tax to remove the ad valorem component and impose a specific excise tax of HKD 75 per litre of pure alcohol would increase the GDP contribution of the spirits industry by around HKD 1 billion.48 This included substantial increases in economic act

157、ivity from tourism.A tax reform presents an opportunity to unlock the full potential of Hong Kongs spirits market,particularly in premiumisation.According to the 2019 CUHK study,a reform of spirits taxes could increase the variety of spirits available at more reasonable prices and promote higher qua

158、lity drinking and dining experiences for locals and tourists.This could increase the incentive to purchase spirits locally,and in turn allow the city to cater to evolving consumer preferences for premium products.Many industry stakeholders also support a reform of spirits taxes to redirect overseas

159、food and beverage consumption back into the territory and bolster the local industry.The Hong Kong Federation of Restaurants and Related Trades and the Hong Kong Bar and Club Association reported that Hong Kong consumers increasingly travel to Shenzhen and divert their consumption abroad due to the

160、relative cost-effectiveness of liquors there.As such,these organisations have called for the government to abolish the current ad valorem tax on spirits,which they believe would retain domestic consumption and boost restaurant and bar earnings.49Reforming spirits taxation thus has the potential to e

161、nhance Hong Kongs appeal as a culinary and travel destination and can generate new opportunities for tourism and spirits-related businesses.The 2019 CUHK study estimated that more than 900 full-time jobs would be created across the spirits trade,tourism,gastronomy,bar and auction sectors under their

162、 proposed rebalancing to a specific excise tax system,further amplifying the positive impact of a tax reform for spirits.Alcohol market stakeholders interviewed in the study also believe that the proposed tax reform would attract more international events to Hong Kong,and lead to spillover benefits

163、in other MICE businesses and hospitality-related industries.The study also highlighted the potential transformation of Hong Kong into Asias leading spirits auction hub.By promoting innovative business ventures and auction activities for fine and rare spirits through tax reform,the city can capitalis

164、e on its strategic location and vibrant market dynamics to foster a thriving ecosystem for spirits trading and investment.This can stimulate the development of ancillary services such as brokerage and valuation consultancy,adding depth and sophistication to the spirits industry in Hong Kong.The exam

165、ple of the blossoming wine industry in Hong Kong has made a compelling case for the potential economic benefits of reforming spirits taxation.Hong Kong eliminated excise duties on wine in 2008.As a result,there was an 80.0%growth in wine imports from 2008 to 2009,alongside a 31.4%surge in wine-relat

166、ed companies and a 34.1%increase in wine-related business receipts from 2007 to 2009.The elimination of wine duties also generated around 48 Wine&Spirits Business Council(WSBC)of the European Chamber of Commerce in Hong Kong,“WSBC Position Paper”,2019.49 Epoch Times Hong Kong,“黃家和倡發財巴穿梭景點 酒吧業籲撤烈酒稅”,

167、2024.1,000 full time jobs,and Hong Kong became the worlds second largest wine auction market with a total auction value of USD 97.8 million(HKD 765.7 million)in 2017.50While Hong Kong is an outlier in its approach to spirits taxation,examples from around the world have shown the economic benefits of

168、 reforming alcohol taxes.A World Bank note in 2024 proposed a reform of all alcohol taxes in Laos from an ad valorem structure to a uniform volumetric specific tax structure.For spirits,this means replacing the 110%ad valorem excise tax with a specific tax at LAK 72,000(HKD 26.1)per litre.The propos

169、ed alcohol tax reform would increase the tax contribution of the alcohol industry by an estimated LAK 1.8 trillion(HKD 650 million),which is equivalent to nearly 1%of Laos GDP.51Similarly,economic modelling of potential alcohol tax reforms also points to substantial revenue and employment benefits.I

170、n Australia,a proposed reform replacing the ad valorem Wine Equalisation Tax with a volumetric specific tax rate at AUD 14.08(HKD 73.07)per litre was estimated to bring around AUD 25.0 million(HKD 130 million)per year in additional taxation revenue collected from alcoholic beverages.The tax reform,i

171、f implemented,was also estimated to create 447 more full-time jobs for Australias economy.52 In Taiwan,the UK,and the US,all of which use specific tax for spirits industries with large economic footprints,there is evidence to suggest spirits tax reductions,or freezes,supported industry development,G

172、DP contribution,and jobs.5350 jdlas Waiman Cheung;Simon Su,“Study on Spirits Tax Reform and Economic Benefits-A Benchmarking Exercise”,2019.51 World Bank,“Health Taxes in the Lao PDR”,2024.52 ACIL Allen Consulting and Foundation for Alcohol Research and Education,“Alcohol Tax Reform:Economic Modelli

173、ng”,2015.53 Waiman Cheung;Simon Su,“Study on Spirits Tax Reform and Economic Benefits-A Benchmarking Exercise”,2019.35The Economic Contribution of International Spirits in Hong KongThe“premiumisation”of consumer preferences creates a new economic opportunity,which is particularly valuable in the pos

174、t-pandemic era as economies in Asia look for any opportunity to accelerate recovery.From a policy perspective,seizing the opportunity requires a more detailed understanding of the economic contribution the spirit sector creates.Our analysis has shown that international spirits play a dominant role i

175、n the premium alcohol sector in Hong Kong.In fact,they are a key component of the economic BOX 1:OUR APPROACH TO ECONOMIC IMPACT ASSESSMENTIn this report,we use a bespoke economic impact modelling framework to analyse the contribution that international spirits make to the Hong Kong economy.We asses

176、s the direct economic impact of the businesses and workers involved in the sale and distribution of international spiritsthat includes wholesalers,hospitality,and retail.We present the impact in three ways:Gross value added(GVA)contribution to gross domestic product(GDP).This is the value of the out

177、put produced by businesses involved in international spirits sale and distribution,minus their expenditure on inputs(goods and services)that are used up in production.Aggregated across all economic operators in the economy,this forms GDP(plus production taxes and subsidies),which is the most widely

178、recognised measure of total economic output.Margins data provided by EuroCham members and national statistics were used to estimate this GVA contribution.Employment.This is measured on a headcount basis to facilitate comparisons with national statistical agencies employment data.It therefore include

179、s anyone who is paid wages for their activity in the sale and distribution of international spirits,regardless of the length of their working week or whether they work all year round.Tax contribution.This includes excise taxes,corporation tax,and income tax in Hong Kong,derived from international sp

180、irits trade,and is estimated using national statistics.Our results are presented on a gross basis.They therefore ignore any displacement of activity from other uses of the resources used in the sales of international spirits.We present our findings in 2023 prices.When adjusting prices to real terms,

181、we use official price deflators based on economy wide inflation trends.contribution of Hong Kongs retail and hospitality sectors,encompassing local restaurants,bars,retail stores,hotels,travel retailers,and more.In this chapter,we map out the economic footprint of the downstream distribution and sal

182、e of international spirits in Hong Kong,estimating the contribution they make to gross domestic product(GDP),employment,and tax across three channels:wholesale,hospitality,and retail.We also analyse the trajectory of the sector over recent years and the impact that Covid-19 had on its performance.Al

183、l values in our analysis are quoted in HK dollars,adjusted to keep prices constant at 2023 levels.This enables comparability across years.We adjust the prices based on economy-wide,rather than sector-specific inflation indices,because our analysis is designed to capture international spirits impact

184、throughout the whole economy.5.INTERNATIONAL SPIRITS ECONOMIC CONTRIBUTIONx3637The Economic Contribution of International Spirits in Hong KongThe Economic Contribution of International Spirits in Hong Kong5.1 THE ECONOMIC CONTRIBUTION OF INTERNATIONAL SPIRITS IN HONG KONGSale and distribution of int

185、ernational spirits in Hong Kong contributed HKD 1.4 billion to national GDP in 2023.In real terms,this marked an increase of HKD 280 million from the GVA contribution of international spirits to GDP in 2022.This contribution was equivalent to 0.3%of the total GVA contribution the hospitality,retail,

186、and wholesale sectors made to GDP in 2023.The sale and distribution of international spirits also supported an estimated total of 5,200 jobs in 2023,and generated HKD 1.3 billion in tax revenues accumulated across excise,corporate,and income tax contributions.5.1.1 The impact of international spirit

187、s in detailThe most significant impact made by international spirits is in the hospitality sector,which amounted to approximately HKD 1.2 billion in 2023,and accounted for 82%of international spirits total GVA contribution in Hong Kong that year.This was followed by the retail and wholesale sectors,

188、in which international spirits contributed HKD 166 million and HKD 91 million to sector GVA in 2023,respectively(see Fig.7).Jobs supported by international spirits are also skewed towards the hospitality sector,which employed roughly 4,800 persons.A further 200 and 100 jobs were supported in the ret

189、ail and wholesale sectors respectively that year(see Fig.8).91 166 1,192 1,449 WholesaleRetailHospitalityTotal02004006008001,0001,2001,4001,600HKD millions100 200 4,800 5,200 WholesaleRetailHospitalityTotal01,0002,0003,0004,0005,0006,000Jobs*Source:Oxford Economics.EuroCham.IWSR.Figures may not sum

190、due to rounding.*Rounded to the nearest hundred.Source:Oxford Economics.EuroCham.IWSR.Figures may not sum due to rounding.Fig.7:Distribution of international spirits contribution to GDP in Hong Kong by channel,2023Fig.8:Distribution of jobs supported by international spirits in Hong Kong by channel,

191、20233839The Economic Contribution of International Spirits in Hong KongThe Economic Contribution of International Spirits in Hong Kong1,749 1,820 1,725 1,258 1,426 1,168 1,449 0.0%0.1%0.2%0.3%0.4%0.5%201720182019202020212022202302004006008001,0001,2001,4001,6001,8002,000GVA(left axis)Share of overal

192、l GVA(right axis)HKD millions,2023 prices%5.1.2 The evolution of international spirits in Hong KongBetween 2019 and 2020,the contribution to GDP from the sale and distribution of international spirits fell from HKD 1.7 billion to HKD 1.3 billion,reflecting the adverse impact the pandemic had on the

193、downstream sectors.In the years after 2020,the sectors contribution to GDP fluctuated,showing brief signs of recovery in 2021 before falling to a new low in 2022.Despite that,the importance of international spirits across the overall hospitality,retail,and wholesale sectors has grown.Our analysis sh

194、ows downstream sales of international spirits accounted for a larger share of this aggregated sectors GVA,rising from 0.23%in 2020 to 0.28%in 2023(see Fig.9).As the pandemic restrictions came into force in 2020,the number of jobs supported by downstream sales of international spirits in Hong Kong de

195、creased.The sale and distribution of international spirits supported an estimated 6,400 jobs in 2019 in the hospitality,retail,and wholesale sectors,which fell to 4,500 in 2020.Since then,the number of jobs supported by international spirits in Hong Kong increased to 5,200 jobs in 2023,still far sho

196、rt of the pre-pandemic level recorded in 2019.However,like its share of the sectors GDP contribution,international spirits also increased its share of employment in the overall hospitality,retail,and wholesale sector,from 0.53%to 0.62%between 2020 and 2023(see Fig.10).Source:Oxford Economics.EuroCha

197、m.IWSR.Fig.9:International spirits share of the hospitality,retail,and wholesale industry GDP contribution in Hong Kong,2017-2023During the pandemic,whilst the hospitality industry suffered under lockdowns and border closures,international spirits contribution to the retail and wholesale sectors gre

198、w.The contribution to GDP from international spirits sales in off-trade premises such as supermarkets and convenience stores grew from HKD 137 million in 2019 to HKD 146 million in 2020,and to a peak of HKD 199 million in 2022,reflecting a rise in private consumption.The contribution from the wholes

199、ale sector also grew steadily from HKD 79 million in 2020 to HKD 91 million in 2023,almost recovering to its pre-pandemic level in 2023(see Fig.11).*Rounded to the nearest hundred.Source:Oxford Economics.EuroCham.IWSR.Fig.10:International spirits share of the hospitality,retail,and wholesale industr

200、ys employment in Hong Kong,2017-20235,800 5,900 6,400 4,500 5,100 3,900 5,200 0.0%0.1%0.2%0.3%0.4%0.5%0.6%0.7%201720182019202020212022202301,0002,0003,0004,0005,0006,0007,000Jobs(left axis)Share of overall employment(right axis)Jobs*%4041The Economic Contribution of International Spirits in Hong Kon

201、gThe Economic Contribution of International Spirits in Hong Kong95 98 93 79 88 89 91 137 141 137 146 159 199 166 1,518 1,581 1,495 1,033 1,179 880 1,192 1,749 1,820 1,725 1,258 1,426 1,168 1,449 201720182019202020212022202302004006008001,0001,2001,4001,6001,8002,000HKD millions,2023 pricesWholesaleR

202、etailHospitalitySource:Oxford Economics.EuroCham.IWSR.Figures may not sum due to rounding.Fig.11:International spirits contribution to GDP in Hong Kong by channel,2017-2023The employment supported by the sale and distribution of international spirits trended in a broadly similar fashion to that of i

203、ts GDP footprint.While hospitalitys share of the international spirits employment footprint fell from 95.3%to 93.3%between 2019 and 2020,retails share of total employment supported by the sale and distribution of international spirits increased from 3.1%to 4.4%.The wholesale sectors contribution to

204、total employment also rose from 1.6%to 2.2%across the same period(see Fig.12).The downstream activities of international spirits contributed substantial tax revenues to the government,primarily in the form of excise taxes.The firms and employees that form part of the economic footprint also generate

205、 corporation and income tax revenues.In 2023,tax receipts totalled HKD 1.3 billion and represented 34.0%of the overall retail value of international spirits in Hong Kong.Tax revenue collected steadily increased since 2020 and nearly reached pre-pandemic levels in 2023,reaching 98.0%of the total tax

206、receipts in 2019(see Fig.13).*Rounded to the nearest hundred.Source:Oxford Economics.EuroCham.IWSR.Figures may not sum due to rounding.Source:Oxford Economics.EuroCham.IWSR.Fig.12:Jobs supported by international spirits in Hong Kong by channel,2017-2023Fig.13:International spirits contribution to ta

207、xes in Hong Kong,2017-2023100 100 100 100 100 100 100 200 200 200 200 200 200 200 5,500 5,700 6,100 4,200 4,800 3,600 4,800 5,800 5,900 6,400 4,500 5,100 3,900 5,200 201720182019202020212022202301,0002,0003,0004,0005,0006,0007,000Jobs*WholesaleRetailHospitality1,394 1,418 1,330 1,130 1,255 1,280 1,3

208、03 201720182019202020212022202302004006008001,0001,2001,4001,600HKD millions,2023 prices42The Economic Contribution of International Spirits in Hong Kong5.2 THE IMPACT OF TAX REFORM ON THE ECONOMIC CONTRIBUTION OF SPIRITSReforming excise taxation in Hong Kong could amplify the economic contribution

209、of the international spirits industry in Hong Kong.As demonstrated in the 2019 CUHK study on the economic benefits of a spirits tax reform,rebalancing the tax structure could boost the industrys GDP contribution to the wholesale,retail,and hospitality sectors,largely through increased tourism and ec

210、onomic activity.It could make Hong Kongs spirits offerings more affordable and diverse,improving the quality of drinking and dining experiences.This in turn presents economic opportunities for local businesses,as a reform to specific excise taxes may attract more tourists and incentivise Hong Kong c

211、ustomers to purchase spirits locally.Additionally,reforming the spirits tax could create a conducive environment for spirits trading and investments.This would promote Hong Kong as a leading spirits auction hub and centre for international MICE events,further driving the growth and development of Ho

212、ng Kongs economy.45The Economic Contribution of International Spirits in Hong Kong6.CONCLUSIONOur analysis of the Hong Kong alcohol market has shown that,despite its relatively small market share,international spirits deliver a sizeable economic contribution in the form of GDP,jobs,and tax revenues.

213、This contribution is achieved despite the large hurdle the industry faces from a high ad valorem tax rate,a level that sets the Hong Kong market apart from comparator countries in the region.The“premiumisation”trend in alcohol sales is driving a positive outlook for the international spirits industr

214、y in Hong Kong.Following the long period of pandemic-driven isolation,the citys tourism-facing industries are rebounding.These visitors are increasingly demanding premium products and services,and Hong Kong can further encourage,and benefit from,these visitors by ensuring that there is a conducive p

215、olicy environment for tourism-facing businesses.This report demonstrates how rebalancing the tax structure on spirits towards a specific tax,could enable Hong Kong to benefit further from this contribution of the international spirits industry,whilst potentially providing a more effective tax policy

216、 instrument.Increasing tourism and traveller arrivals,alongside a more conducive policy environment,could enable further growth in the economic contribution of the international spirits.The success of the wine industry in Hong Kong,as well as other international studies,show the economic value that

217、could be unlocked through reforming spirits taxes.46The Economic Contribution of International Spirits in Hong KongOxford Economics was founded in 1981 as a commercial venture with Oxford Universitys business college to provide economic forecasting and modelling to UK companies and financial institu

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