Japan: Finance Ministry overhauling the beer taxation system

Japan’s Finance Ministry officials are creating a buzz with plans to lower the tax on real beer while raising the levy on imitations of the brew, The Asahi Shimbun reported on August 31.

The plan under consideration would set a uniform tax amount for all such beverages while rewriting the definition of beer, the first time that will happen in about 110 years.

One goal is to dilute breweries’ efforts to avoid paying higher taxes for beer by churning out imitation beverages that fall short of the definition of beer.

It all comes down to malt.

The tax on a 350-milliliter can of beer is 77 yen ($0.64).

For a similar can of “happoshu,” which has a malt content level under 25 percent, the tax is 47 yen, while the tax for malt-free “third-category” beer is 28 yen.

To maintain beer tax revenues at the current level, Finance Ministry officials are looking at a uniform rate of about 55 yen for all those beverages. That could lead to lower retail prices for beer, but higher prices for happoshu.

After coordinating with the ruling coalition and the beer industry, the Finance Ministry plans to include the changes in tax law revisions for the next fiscal year.

The beer tax in Japan is considerably higher than in other nations, a reflection of its history as a luxury imported item about a century ago. Japan’s tax amount is 17 times that in Germany and about 10 times higher than in the United States.

Japanese breweries have been furiously developing products that skimp on malt to avoid paying the higher beer taxes.

However, Finance Ministry officials fear tax revenues could decline with increases in consumption of the cheaper, imitation beer.

In fact, taxes collected from beer sales currently fall below the combined amount from sales of happoshu and third-category beer, and overall alcohol tax revenues dropped to about 1.3 trillion yen in fiscal 2014, about 60 percent of the level two decades ago.

In 1908, beer was legally defined in Japan as a beverage made from malt and hops and with a malt content of 67 percent or higher.

Under the first change in that definition, the malt content ratio will be lowered, and ingredients, such as orange peel added for flavor, will be allowed.

Such changes could help breweries in, for example, Belgium, where orange peel and herbs are regularly included in their beer.

Beers produced in Belgium have a malt content between 50 and 67 percent, meaning that they are technically not beer in Japan. But Japanese regulations require such beverages to be taxed as beer, leading to calls from the European Union for changes.