a beer or not a beer

8/2/2019 A Beer or Not a Beer

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I Beer and taxation in Japani

A Beer or Not a Beer?How Japanese tax law affects brewers' barley ratiosBy Ben Brown

xaniine the cooler shelves

in the liquor section of any

grocery or convenience store

and you'll sec what appears.at first glance, to be a vast

selection of different beers.

A closer look narrows these down mosdy

to offerings from Jap an's major b rewers

(Suiiiory, Kirin, Sapporo, and Asalii), witli

lip-service given to imports (Guinness,

Heineken, etc.) on the end of tlic row in

most supermarkets. Tlie apparent variety

can be overwhelming, so take a look at the

next thing to catch constimers' eyes once

they've looked past the colorful packag-ing—the price tags.

Prices between apparently similar offer-

ings from tlie same company can differ by

as much as ¥120, or around half the price

ol the more expensive can. The keen ob-

server, perusing the busy labels, will begin

to notice some trends. All the "beers" that

break ¥2 00 are labeled as "beer.' ' Th e next

rank , in the area of ¥1 50 p er can, is called

/lappos/iu, or "b ubbly alcohol." An d the even

cheaper tins, arou nd ¥1 00 or so, earn the

appellation "other brewed beverages." Tliis

unwieldy hierarchy oí price points can be

traced back to Jap an 's arcane alcoho l taxa-

tion laws, specifically those for beer.

Records exist for a system of alcohol taxa-

don during tlie Edo (1603-1868) and early

Meiji eras, lliis system was foctised on pro-

ikiction: anyone who had the money and

lesources to purdiase a license, was free

to brew and sell alcoholic beverages. The

land tax revisions of 1873 ushered in tlie

creation of at least 1500 categories of fed-

eral taxes, including a general liqttor tax.Beer specifically was first taxed direcdy in

1901, and the liquor tax quickly became a

primary source of tax revenue, second only

to tile land tax.

Beer, as defined by Jap ane se tax law, is a

fermented beverage comprised of water,

hops, and at least two-thirds malted barley

(the remaining tliird may be any of several

adjuncts, such as corn or rice starch). In

comparison, this is significantly more le-nient than the Reinheitsgebot, the Bavarian

Purity Law (ji 1516 which many breweries

worldwide still proudly advertise on their

products, and which states that only water,

barley, and bops may be used bi the pro-

duction of beer. Tliough no longer a pai't

of German law, this definition is, for many

advocates and enthusiasts, the only one ap-

plicable to beer.

Tbe current system of liquor taxation dates

back to a post-war overhaul in 1953, with

major re\'isions in 1962 and 1989, and mi-

nor revisions over the past decade. Most

significant among these major revisions

was perhaps that of 1989, as the tax on lux-

ury' goods such as automobiles and large

electronics was lowered drastically to com-

pensate for the newly introduced general

consumption tax. To the dismay of brewers

across tbe countr)', beer, though long taxed

as a luxur).' good, remained stable.

'->„

Given this background, it would perhap

have been a simple matter to predict that d

innovation of the industry would find a wa

arotmd the specificities of the tax laws: i1995, six years alter tlie most receiii liqut

tax revision, that is precisely what tliey did

In 1995, hi^ptiihuwas introduced to the ma

ket. This clever new creation got aroim

tlie tax definition of beer by including le

than two-thirds malted barley. Substitutin



I w ww .]apaninc.com

cheaper ingredients (nee and corn in par-

ticular) in greater quantities, major brewers

were able to drive the malt content below

two-thirds, taking tliis beverage away from"beer" and into its own categoiy. Ingredients

otlier than malted barley quickly emascu-

late the flavor and bo dy of most ales, and of

many lagers: but for the light, pilsner-csque

style longp referred in Jap an, these adjunct

ingiedients—whose effect is essentially to

lighten a beer while providing more fer-

• • It seems only a ma tter of time before anothe r tax revisiondrives brew ers to som ething even further from their roots • •

mentable sugars—work perfectly, and the

crisp new pseudo-beers were hard for the

average consumer to distingtiish from tlieir

predecessors, except by price.

How much leeway did the industry gain by

beating the old tax category? In the year

it came out, happoshu was taxed at 18.6%.

Beer, on the other hand, was at a whop-

pbig 45.5%. Consumers long used to losingthree cans of their six-pack to taxes were

happy to imbibe a near-identical beverage

for far less yen. Sales of liapposhu climbed

rapidly. So rapidly, in fact, that it took the

government less than a year to react with a

new tax revision: in 1996, the taxes applied

to tliis categoi-y were raised to 28.9'Vi). and

üien to 35 .5% iii 2003.

Now that taxes have just abo ut caught u p

with happoshu., push ing it close to beer price-

wise, brewers are turning to a third option:

beverages made without any malted barley

at all. These Frankenstein concoctions rely

on peas and soybeans for fermentable sug-

ars (in place of malted barley, or even com

or rice), and are cobbled together from

distilled alcohol, artificial flavoring, and

coloring agents. They are low in tax and

low in flavor, bin for now at least they are

keeping the brewers ahead of the tax curve,

and their popularity is rising. It seems only

a m atter of time before anothe r tax revision

drives brewei-s to somethmg even further

from their roots, though at this point it i.s

doubtful that any reasonable alternatives

remain.

Whether this battle between industry and

gov ernm ent is good oi" bad for the con-

sumer is difficult to assess. On one hand,

the industry continues to innovate, offering

more diverse and cheaper options. Tliese

options are increasingly lacking in flavor

and b ody, but fate has dictated that the best

selling beer style in Ja pa n is a very light la-

ger, so the cheaper deviations don't fafl far

from the average consumer's ideal. On tlie

otlier hand, the tax levied on "proper" beer

remains h igh: eight to ten times higher tha n

the US, and about double the rates in the

UK. Tliis niiikes it difficult for consumers

who appreciate the real sttiff to enjoy it as

often as they might elsewhere, a frustrat-

ing situation for beer purists, who see their

ambrosia increasingly diluted as brewers

divorce themselves from malted barley.

Li tlie end, there's iKJtliing to do, really, save

sit back and watch as the tax warfare and

clever evasion plays out. Enjoy the spec-

tacle, and sip a domestic as you do—and

tr)- no t Lo pictU3"e tlie firs t half of y ou r glass

draining into the government's coffers. Jl

a beer or not a beer

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