The Zhitong Finance App learned that Dongxing Securities released a research report that if the consumption tax reform is implemented, it will reshape the pattern of interests between wine companies and dealers in the short term, testing the wine companies' ability to control the market and operate channels. In the long run, the advantages of famous wines will be further revealed, and the consumption tax reform will bring about a further increase in industry concentration. Looking at the relationship between wine companies and channels from the perspective of price elasticity, the channel demand for high-end wine is more rigid, so after the tax burden on high-end alcohol increases, the channel is more likely to bear it. The demand from the second-tier wine companies, on the other hand, is more flexible, and companies are more likely to take on it.

Rumors about the consumption tax reform have resurfaced. The “State Council's Audit Report on the 2023 Central Budget Execution and Other Fiscal Revenue and Expenditure” issued on June 25 clearly proposes “planning a new round of fiscal and taxation system reform to improve the division of financial authority and expenditure responsibilities between the central government and local authorities.” The consumption tax reform, which adjusts the sources of central and local tax revenue, has once again attracted market attention and caused recent fluctuations in the liquor sector.

Possible direction of liquor consumption tax reform? Consumption tax reform in the liquor industry includes aspects such as the collection process and the scope of taxation. It has been mentioned in policy documents over the past 10 years. According to the “Promotion Plan for Adjusting Central and Local Revenue Division Reform after Implementing Larger Tax Cuts and Fees” issued in 2019, the liquor consumption tax reform mainly moves back the taxation process, that is, under the premise that collection and administration is controllable, some of the current consumption tax items levied in the production (import) process are gradually moved back to wholesale or retail.

What is the impact of the liquor consumption tax? Consumption tax in the liquor industry is currently collected during the production process, and a mixed tax calculation method is implemented. Among them, ad valorem calculation is based on 60% of the final sales price of liquor sales companies, that is, 60% of the ex-factory price of liquor, as the tax standard, with a tax rate of 20%. At the same time, quantitative levy will be implemented, and consumption tax will be levied at 0.5 yuan per catty. If the current liquor consumption tax reform moves to a later stage, it means that the tax calculation standard may be changed from factory price to retail price, and the overall consumption tax burden level will increase.

Who is responsible for the liquor consumption tax? Judging from the possible solutions, if the consumption tax collection process is moved down to the dealer process, the increased tax burden will be borne by the dealer. There is a concept of price elasticity in economics. It can simply be understood as the degree to which supply and demand are sensitive to price. When demand is more elastic, the tax burden is borne more by consumers; if demand is not elastic, then the tax burden is more borne by enterprises. Looking at the relationship between wine companies and channels from this perspective, the channel demand for high-end wine is more rigid, so after Dongxing Securities judges that the tax burden on high-end liquor increases, the channel is more likely to bear it. The demand from the second-tier wine companies, on the other hand, is more flexible, and companies are more likely to take on it.

Investment strategy: Dongxing Securities believes that if the consumption tax reform is implemented, it will reshape the pattern of interests between wine companies and dealers in the short term and test the ability of wine companies to control the market and operate channels. In the long run, the advantages of famous wines will be further revealed, and the consumption tax reform will bring about a further increase in industry concentration. Continuing the views of the previous report, Dongxing Securities has long been optimistic about the ability of famous wine companies to further increase their market share. It suggests focusing on the liquor industry under macroeconomic recovery and recommending Kweichow Moutai.

Risk warning: The macroeconomic recovery fell short of expectations, the consumption tax reform plan was inconsistent with market expectations, the recovery in demand for liquor fell short of expectations, etc.