Singapore's alcohol distributors face hangover as booze tax hike weighs on sales

How will boozehounds bear the brunt?

Singapore may be experiencing its worst dry spell ever but for local liquor retailers, there's a different kind of drought.

In the 2014 Budget, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said alcohol tax will be hiked by 25% while tobacco taxes will be increased by 10%. While this move aims to discourage vices and keep up with rising inflation, the new excise duties could hit smaller alcohol retailers in Singapore.

According to Rajesh Ram Singh, owner of Liquorbar.sg, “as a startup and a small business, the impact is pretty bad. The sales have dropped after the tax increase.”

But this could just be the tip of the iceberg.

Singh said that there was not enough time given for distributors to adjust prices.

“What's most disturbing is the sudden change. We have been waiting for some distributors to still get back to us regarding prices,” he said.

This was echoed by Mr. Jitendra Bhilare, managing director for Legendary Spirits, who said there was no warning sign prior to the hike so retailers were caught off guard.

“Several SME will feel the same. Our expansion plans and hiring plans are definitely shelved for now till the market forces stabilize,” he said.

“Liquor prices will definitely rise but the full brunt will be the consumers as the HORECA will increase the prices as they seem fit. However, prices shouldn't increase by $0.50 to $1 per drink after factoring in the price hike,” Bhilare added.

In terms of absorption, some distributors are also feared to have not absorbed the costs yet.

“Distributors have just handed down the costs to the consumer. It is understandable as the profit margin we look at when it comes to liquor is pretty low. Most of the liquors have gone up from $6-$8. Some have taken advantage of this opportunity to raise it up to $12 for some items. But this is also understandable as many of the distributors have been absorbing increases over the years,” noted Singh.

However, some liquor distributors stressed that retailers must not take advantage of the 25% tax hike.

Dato’ Elaine Teh, group executive director of liquor distribution and supply chain company Octopus Group Holdings said liquor that has been duty paid prior to the government’s Budget announcement should be released to the consumers at existing prices.

“Octopus Group’s retail arm Cellarbration Pte Ltd will continue to retail all their liquor products at prices before the duty excise increment until all existing duty paid stocks are fully sold out,” she said.