VAT Exemption for Import Declarations from June 28
Bean Purchase Burden to Decrease Possibly Next Month
"No Practical Effect" Criticism Also Raised
[Asia Economy Reporter Heo Midam] As international coffee bean prices surge, retail coffee prices are rising rapidly. In response, the government has decided to exempt the 10% value-added tax (VAT) previously applied to the import of green coffee beans (unroasted beans) to reduce the burden of living costs. However, there are concerns that the VAT exemption effect will be minimal for general consumers who use cafes.
According to the Ministry of Agriculture, Food and Rural Affairs on the 4th, major green coffee bean import and distribution companies such as Blessbean, Woosung MF, and MI Coffee have agreed to distribute green beans at prices exempt from the 10% VAT.
Until now, a 10% VAT has been applied to the selling price of green coffee beans. For example, a green bean selling price of 20,000 won includes 1,820 won of VAT. However, if the VAT is exempted, the price drops to 18,180 won, resulting in a price reduction effect of about 9.1%.
This measure is expected to reduce the burden on so-called 'home cafe' enthusiasts who purchase green beans directly and brew coffee at home, possibly starting as early as August. This is because it usually takes about two months for green beans to go through customs clearance, repackaging, and delivery after being imported into the country. The government exempted VAT on green beans from import declarations made on the 28th of last month.
However, it is uncertain whether general consumers will feel the effect of lower coffee prices. Some coffee specialty stores import roasted beans instead of green beans, so they are unlikely to benefit from the VAT exemption. Starbucks, the industry leader by sales, also imports roasted beans and is therefore not included in the VAT exemption.
Even coffee shops that roast green beans themselves find it difficult to lower coffee prices. Although they receive green beans at reduced prices, the prices of various ingredients such as milk and sugar have risen significantly, and labor costs have also increased, making it difficult for store owners to adjust selling prices.
Earlier this year, major coffee franchise companies raised beverage prices one after another, increasing the burden on consumers. Starting with Starbucks in January, most large franchise companies such as Twosome Place and Angel-in-us have already raised coffee prices. Currently, the prices of Americano at major franchise cafes are ▲Starbucks 4,500 won ▲Coffee Bean 5,000 won ▲Twosome Place 4,500 won ▲Angel-in-us 4,500 won.
This is related to the rise in international coffee bean prices. The international price of Arabica beans rose 103.5% from 113 cents per pound (about 454g) in 2020 to 230 cents in December last year. Low-cost coffee companies that emphasized cost-effectiveness have also raised menu prices citing the rise in international coffee bean prices.
Meanwhile, the Ministry of Agriculture, Food and Rural Affairs plans to continuously monitor whether the VAT exemption on green beans is reflected in actual consumer prices. Kwon Jaehan, Director of Food Industry Policy at the Ministry, said, "Active cooperation from the coffee industry is necessary so that the VAT exemption on green beans leads to coffee price stabilization and the effect is passed on to consumers."
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