Japan: Industry concerned over possible tax hike on new beerlike drinks

Major beer companies are currently introducing a so-called fourth-category beer, creating a new competitive market for the beerlike alcoholic beverage, The Yomiuri Shimbun reported June 5.

While so-called third-category beer contains no malt, fourth-category beer is a mixture of low-malt happoshu beer and barley-based spirit, and is categorized as a liqueur under the Liquor Tax Law.

The new product is priced relatively low by taking advantage of a blind spot in the law. However, beer companies are afraid the Finance Ministry might raise the tax if the product proves popular.

Although the new beverage uses less than 50 percent malt--similar to happoshu low-malt beer--it will be taxed about 50 percent less under the Liquor Tax Law, as it contains barley-based spirits. Previously, beer companies have played a protracted tax-related game of cat and mouse with the Finance Ministry after introducing new products, such as low-malt beers and third-category beers. However, the ministry eventually increased taxes for the products. Some companies are concerned the same thing may happen with the new beerlike drinks.

Fourth-category beer follows on the heels of third-category beer, which primarily uses peas as a raw material and contains no beer or malt.

Kirin Brewery Co. released Kirin Ryoshitsu Sozai on May 23; Suntory Ltd. will release Kin-Mugi on June 19; and Sapporo Holdings Ltd. will release W-Dry on June 27. Front-runner Asahi Breweries Ltd. released its Gokuuma product in October.

Fourth-category beer is made by combining spirits made from barley with low-malt beer. Because of this, it is priced lower than low-malt beers, but is said to have a similar flavor. The price for a 350-milliliter can is about 135 yen to 140 yen, while low-malt beers are sold for about 152 yen in Tokyo convenience stores.

Fourth-category beers cost about the same as third-category beers.

A tax of 62 yen is imposed on 350 milliliters of low-malt beer when the percentage of malt is between 25 percent and 50 percent, and 47 yen when it is under 25 percent. However, under the law, if spirits are added, the new beerlike beverage is categorized as a mixed-alcohol liqueur and is taxed 28 yen--the same as third-category beer.

Suntory's Kin-Mugi contains about 49 percent malt. Kirin Ryoshitsu Sozai's and Asahi's Gokuuma's malt levels also are presumed to be about 50 percent, although the figures are not publicly available.

The Finance Ministry will reportedly consider the tax on fourth-category beer depending on consumption trends. But as the market for the new drinks is still immature, the ministry is biding its time. However, their basic stance is to levy a tax similar to that of beer, if consumers treat it as a beer.

Low-malt beer was initially hailed as a "tax-saving beer" and gained wide popularity among consumers. However, it incurred two tax increases--once in October 1996 and then again in May 2003--and as a result, annual sales decreased for the first time in 2003.

Major beer companies are fearful that fourth-category beer will eventually suffer a similar tax fate. Some in the industry have said they do not want the product to be called "beer."

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