A Burp in the Road: Japan's Happoshu Tax

By Brett Bull

Junior reporter Junko sat at the office kitchen table eating her lunch. I was hard at work, packing the newsroom refrigerator with six-packs of happoshu.

"Big night tonight," I said, and unloaded the last six-pack of Kirin's new "Gokunama" from my bag.

She glanced up, a look of weary disapproval on her face. "How so?"

"In order to keep up with Japan's latest beverage-market　trends, I like to do an in-depth study immediately after a new brand of happoshu is introduced. A taste test, if you will."

"Yeah, but that stuff is going to be taxed like regular beer soon enough. You may not be able to afford it."

I have grown accustomed to her little jokes.

"As I'm sure you have heard," I said, "the happoshu tax increase proposal was overturned once again late last year. This is two years in a row that we drinkers have been victorious over greedy government officials' attempts to raise the price to that of regular beer. It's like child's play."

"The idea is a waste of time anyway," said Junko. "Even though lushes like you would pay a premium to drink raw sewage if there's a hint of alcohol content, most other people will reject happoshu because it tastes terrible. So you're taste testing a product that could be history in a year."

"My dear, for someone like me, a person for whom planning the following day's agenda is a challenge, one year might as well be a lifetime." I closed the refrigerator door and smiled. Junko returned to her repast.

A t Liquors Hasegawa's North Exit branch in the Yaesu Shopping Mall underneath Tokyo Station, manager Shunji Hasegawa has seen a lot in his 30 years of selling beer, wine, and whiskey to thirsty Japanese drinkers on the move through the busy station. He's weathered the oil shocks of the '70s, temporary economic downturns, and the ever-changing whims of the Japanese consumer. But if certain bureaucrats get their way he's going to face perhaps his greatest challenge yet: an increase in the tax levied on a very popular alcohol innovation: happoshu. "If it happens, business will be very tough," he grimaces.

Happoshu, or literally "sparkling liquor," is a beer-like low-malt alcoholic beverage that is extremely popular with consumers because of its very low price relative to regular beer. The price difference is due to a loophole in tax laws. The Liquor Tax Law defines beer to be an alcoholic beverage with 66.7 percent malt content. Happoshu contains less than 25 percent malt, giving it an alcohol tax less than half the amount imposed on standard beer.

Suntory first introduced the beer alternative in October 1994. Since then, each of Japan's five leading breweries have produced their own brands. Today, the market is awash in a great variety of concoctions that range from Sapporo's "Brau," featuring lettering and artwork that allude to brews from Germany, to Suntory's "diet," promoted on television commercials by Prime Minister Junichiro Koizumi's son, Kotaro. (In the ads, he explains that the drink is delicious and makes you slimmer.)

There has been nothing slim about happoshu's results, however. Since its inception, shipments have posted year-on-year gains and today account for nearly 30 percent of all beer sales in Japan - one of the world's largest beer markets. This success has bred some hefty competition - so much, in fact, that there's a happoshu price war now brewing. On March 1st, Kirin introduced its "gokumama" brand at a price that is 10 yen less than the competition. Kirin did this by cutting production costs, sales rebates, and advertising. Asahi and Suntory responded quickly by matching Kirin's price, but for a limited time.

Skimming the Froth

With happoshu so bubbly, the Liberal Democratic Party's Tax Research Council wants to increase the tax on the beverage to that of regular beer and scoop off what they hope to be some extra froth.

The Ministry of Finance last year proposed that the increases be done gradually in increments of 20 yen. A similar measure - aimed at boosting tax revenue and funding economic stimulus measures - was tried by bureaucrats the year before but Japan's five large beer makers have fought back. As part of its protest, a lobby group posted a Web page featuring a silver-can mascot with fizzing bubbles. The government's measure failed, and the mascot today thanks visitors at the site for their support during the fight.

Happoshu drinkers fret that bureaucrats will this year make another attempt to increase the tax. But such a move would appear to ignore some important market realities. One, it would rub out happoshu's sole selling point - low price. And it's common knowledge that nobody buys happoshu for the taste - which some critics compare to that of medicine. "If the tax goes up, of course people will stop buying it," snaps retailer Hasegawa. "Basically, the government is stupid." If he's right, the anticipated tax revenues could disappear with the fizz.

Note: Edward Gelband contributed to this report.

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