Microbrewers burned as Knesset okays high beer tax

The Knesset Finance Committee on Wednesday ratified a decision to raise the tax on beer in an effort to increase government revenue, to the dismay of small brewers who say the move will crush their businesses.

The move came less than a year after the previous Netanyahu government levied an ad hoc tax on alcohol and tobacco products, raising the purchase tax on beer from NIS 2.18 to NIS 4.25 ($1.16) per liter. Bars and stores raised prices shortly after the hike was proposed by then-finance minister Yuval Steinitz.

Tax hikes on booze and smokes were expected to earn the treasury an annual NIS 1 billion over the fiscal year. According to a Finance Committee memo published on the Knesset website, the Finance Ministry estimated that the increase on beer would account for NIS 245 million ($67 million) of those revenues.

MK Nissan Slomiansky (Jewish Home), the committee’s chairman, said that the directive was aimed at increasing government income and decreasing “the phenomenon of drunkenness.”

Tax Authority Senior Vice President for Economic Planning Eran Yaakov noted in the Finance Committee memo that raising the tax was “part of the policy to reduce the adverse effects of alcohol.”

He noted that a flat tax of NIS 84 for 100 percent alcohol — which would translate to NIS 4.25 for beer of 5% — was instituted earlier last year, but that “the tax on beer was not raised last year, when the tax was raised on the rest of alcoholic beverages, only on account of Finance Ministry oversight.” 

Microbrewery owners protested the measure at the committee meeting, saying that approval of the tax hike would crush the small businesses. They suggested alternative measures, like a scaled tax on manufacturers based on the quantity of beer produced, or a differentiation in tax between hard and light alcoholic beverages, a route chosen by most countries.

The committee nonetheless voted in favor of keeping a NIS 4.19 per liter tax on beer.

Ofer Ronen, co-owner of the Srigim Brewery outside Jerusalem, told The Times of Israel that his business had been feeling the pinch of plummeting demand and price hikes since last July.

“All of our business planning was based on the previous tax [of NIS 2.18 per liter],” he said, and the tax hike was going to cut deeply into his year-old business’s profits, crippling the venture.

Itzik Shapira of the Shapira Brewery said that the new levy would cripple his fledgling beer business.

“The tax was high enough as it was,” he said, noting that the hikes will punish small businesses disproportionately to the two major breweries that control 98 or 99 percent of the market: Coca-Cola and Tempo Beverages Ltd.

Those large companies can weather the tax hike because of the vast quantities of beer they brew, but microbreweries suffer more per bottle, Shapira said. With the prices on tap of locally produced Goldstar (manufactured by Tempo) set to rise to NIS 30 ($8) and a Shapira beer to NIS 34 ($9) per half-liter, the new tax may also drive consumers to purchase more of the larger breweries’ product, he noted.

Moreover, argued Shapira, Israel is the only country that taxes alcoholic beverages linearly, as opposed to a sliding scale based on the liquor’s proof.

“No country but Israel taxes whisky the same as beer,” he said. 

An online petition against the levy had garnered over 15,000 signatures by Wednesday evening.

Ronen said that if the measure aims to decrease drunkenness, the government’s targeting of microbreweries is misguided. “No one gets drunk on boutique beer,” he said, noting that raising the price on small manufacturers will likely drive drinkers to bargain beers or cheap hard liquors like arak or vodka instead.

Finance Committee members , including those who supported keeping the beer tax at NIS 4.19, called on the Finance Ministry to evaluate the tax’s practicality and return to the committee with solutions to ease the financial burden on small breweries.