It was only a matter of time before the government’s 25% alcohol tax hike separated the “profiteers” from honest businesses. In fact, the Consumers Association of Singapore (CASE) recently checked up on 11 local businesses and discovered that more than 70% of the businesses they checked (including a big name operator) had marked up their beer prices by more than $0.50, which is considered overcharging.
I don’t know about you, but I’d rather have my lunchtime… err, after work beer at a place that isn’t using the tax to boost their profits.
Daniel Goh, the entrepreneur behind popular beer hangout The Good Beer Company, isn’t among that 70%. In fact, he’s one of the few business owners who are not raising prices despite the alcohol tax. He also has a few things to say about the government’s latest “sin tax” on alcohol that you’ll find interesting.
What are your thoughts on the new alcohol tax?
I personally think it’s a cruel thing to do to an F&B industry that’s already suffering from numerous challenges such as skyrocketing rent and manpower difficulties. What’s worse, I have yet to hear a good reason from anyone as to why the tax increase was even needed in the first place.
Can you tell me about the immediate impact of this tax on your business?
There wasn’t an immediate impact on my business as far as operations were concerned. But I’m positive that this tax will create future operational cost increases down the road for alcohol-focused businesses such as bars and pubs.
Let me give you an idea of what I’m talking about.
Due to the 25% tax increase, whiskey with an alcohol by volume (ABV) of 40% to 60% will go from $70 to $88 per liter. That means your duty expense will increase from $5.40 to $8.10 per 750ml bottle.
Assuming that your bar moves about 100 bottles a night, your capital investment goes from $540 to $810. That’s not even counting the markups charged by distributors or the Goods and Services Tax (GST).
What long-term impact do you expect from this tax?
I don’t think there will be any long-term impact as long as businesses continue pass on the additional cost to consumers, within reason.
Do you think this tax will change drinking habits in Singapore?
Well, this tax won’t stop a person from drinking, that’s for sure.
Do you think this tax is going to put a lot of people out of business?
The tax in and of itself won’t drive people out of business. But it will be a contributing factor in making the cost of doing business higher. That and insane rental and manpower costs.
As for your business, why did you decide to keep your prices the same?
I kept my prices the same because I fundamentally disagree with the idea of a luxury or sin tax.
What do your customers have to say about the new alcohol tax?
I think a lot of my customers appreciate the fact that our business is taking the financial “hit” so they don’t have to. That’s the least I can do for my loyal customers.
It has been more than 2 weeks since the government announced the alcohol tax. How is business now?
Business, in terms of revenue, hasn’t been affected. That’s because I didn’t profiteer off the new tax by raising my prices. We haven’t fully counted the overall cost yet, but it’s looking like our profits will drop by about 5%-10%.
Will this tax impact your promotions?
Definitely – we may be forced to cancel certain promotions since, financially speaking, we would be making a huge loss thanks to this tax increase.
MoneySmart Closing Comments
If you’ve read restauranteur Howard Lo’s interview on MoneySmart, you know that business owners in Singapore were blindsided by the government’s 25% tax increase on alcohol. There was also no “early warning” that the tax would be mentioned in the Budget 2014 speech.
Worse yet, there was no “adjustment period” that came with the tax that would allow business owners time to prepare for the financial burden. The tax simply went into effect as soon as it was announced. Now, it’s a cost that must be borne by everyone involved in an alcohol-related business.
However, this tax brings up a big question, which is why the tax was implemented in the first place and what the funds will be used for? That’s a question that continues to remain unanswered.