As learned from the WiseNews App, Soochow Securities believes that there are difficulties in practical operation after the consumption tax collection link is moved. It is expected that the tax reform will not be achieved overnight with a considerable increase in tax rates, but will be gradually implemented while maintaining a stable trend. If the tax collection link is moved, it is expected to further accelerate the concentration of the industry, and long-tail liquor companies may have difficulty coping with the potential profit impact brought about by the tax shift. In the short term, small and medium-sized liquor companies selling products with bare prices or consignment sales may suffer significant impact. In the long term, digital construction of liquor companies may be required to cooperate with the consumption tax collection after the shift.

The purpose of the tax reform is to balance the distribution of fiscal revenue and may promote actions such as the shift of tax collection and transfer to local governments. 1) The purpose of the consumption tax reform: the consumption tax has not yet been shared between the central and local governments. Against the background of sluggish land financial revenue and increasing debt pressure on local governments, it has become an effective way to make up for local financial resources. 2) The direction of the reform for baijiu consumption tax: possible reform measures may mainly include: moving the collection link backward, steadily transferring income to local governments, adjusting tax rates, expanding the scope of collection, etc. It is expected that there is a certain probability of moving the consumption tax collection link backward in the short term, but the possibility of a significant increase in tax rates is low.

There are certain difficulties for the tax collection after the shift, and it requires an increase in the tax administration capacity and cooperation from all parties. The operational difficulties of moving the baijiu consumption tax collection backward mainly lie in: 1) the increase in the number of tax-paying subjects leads to a significant increase in tax administration workload. Taking the wholesale channel as an example, by the end of 2016, there were more than 0.12 million registered liquor wholesale enterprises (including those with both wholesale and retail business) recorded by the business department. If the tax collection link is moved from the production end to the wholesale end, the number of tax-paying subjects will significantly increase from 896 (the number of baijiu companies above the designated size in 2023) to more than 0.1 million, leading to a substantial increase in tax administration workload. 2) Difficulty of supervision and tracking. The collection of consumption tax in the circulation link requires accurate records and monitoring of sales circulation. Considering that baijiu wholesalers are widely distributed and many end consumers do not have the habit of asking for invoices, there is considerable space for false reporting in the wholesale link, which makes supervision and verification difficult. 3) The transfer of finance and taxation payment is relatively complex. Considering that most leading liquor companies are core tax sources of local governments, if they are changed to consumer-oriented taxation, balancing the transfer of fiscal payments will become complex.

It is expected that moving the baijiu consumption tax collection backward will further accelerate the concentration of the industry and make it difficult for long-tail liquor companies with weak brand power, low profit margins, and insufficient bargaining power in channels to cope with the potential profit impact brought about by the tax shift. 1) In the short term, small and medium-sized liquor companies selling products with bare prices or consignment sales may suffer significant impact. If the tax is shifted to the wholesale link, the higher the channel markup rate of the product, the greater the increase in the consumption tax it needs to pay. Currently, there are two products with a high apparent channel markup rate: one is Maotai, but both the dealer and the manufacturer have the ability to bear the additional tax burden due to the high profit margins of both parties, and the other is the bare-price sales product of small and medium-sized liquor companies. Under the consignment sales model, the channel markup rate is usually between 30% and 200%, and the additional tax burden brought about by the tax shift may make it difficult for the channel or the distillery to bear. With the exception of Maotai, the price system of most listed liquor companies is an inverted pyramid model, and the actual tax burden may not increase. 2) In the long term, the digital construction of liquor companies may be required to cooperate with the consumption tax collection after the shift. The payment of the consumption tax shall be paid to the full amount, and it requires multiple aspects of system improvement, such as big data, product flow tracking, golden tax project, etc. The comprehensive promotion of the digital scanning system for liquor companies may help the tax authorities to grasp the information on the sales and circulation of baijiu, thereby improving the efficiency of tax administration.

Investment advice: In 2024, the main strategy for food and beverage investment is undervalued, high-quality and certain growth + high dividend yield, with the auxiliary line being operational improvement. Focus on the continuous increase of stable policies and changes in risk appetite. Under the neutral assumption, the volatility of 2024 is still similar to that of 2022, and low-level layout is more rational. In the long term, white wine is bullish on the fundamental stability and share upgrade targets, while in the short term, it is expected to be weak before the peak season. Recommended stocks include Luzhou Laojiao, Shanxi Xinghuacun Fen Wine Factory, Anhui Gujing Distillery, Jiangsu King's Luck Brewery Joint-Stock, Anhui Yingjia Distillery, and Hebei Hengshui Laobaigan Liquor; Moutai and Wuliangye are recommended, with attention to Zhenjiu Lidu and Xinjiang Yilite Industry. Popular brands focus on cost and channel dividends concentrated in beer and some snack condiments, including Beijing Yanjing Brewery, Chongqing Brewery, Tsingtao Brewery, Three Squirrels Inc., Yanker Shop Food, Jinzai Food Group, Qianhe Condiment and Food, Anjoy Foods Group, and Jonjee Hi-Tech Industrial and Commercial Holding.

Risk warning: macroeconomic performance falling short of expectations, policy landing exceeding expectations, food safety issues. Dongwu Securities: How to view the interpretation path and impact of the reform of the liquor consumption tax?