To understand why whisky is expensive in Korea, you first need to understand two ways of taxing alcohol: the specific tax and the ad valorem tax.
Specific Tax vs. Ad Valorem Tax
A “specific tax” uses the quantity or weight of a product as the basis for taxation. No matter how expensive the product is, the tax is unaffected.
The opposite concept is the “ad valorem tax” — a tax levied on the price of the goods.
Unlike most countries in the world, which apply a specific tax to alcohol, South Korea’s liquor tax is based on the ad valorem system. A tax rate is set for each category of alcohol, and the tax is levied on the price.
Looking at the Liquor Tax Act as of April 1, 2023, on the National Law Information Center: takju (unrefined rice wine such as makgeolli) is taxed at a rate set annually by presidential decree. Yakju, fruit wine, and cheongju (clear rice wine) are taxed at 30%, and beer, like takju, is set annually by presidential decree. And most importantly for us: distilled spirits — the category whisky belongs to — are taxed at 72% of the price.
An ad valorem system also requires a strict separation between commercial-use and household-use alcohol. In Korea, if a restaurant runs low on drinks mid-service, popping into the convenience store next door to buy more and sell it is illegal. In most countries using a specific tax, a restaurant buying from the supermarket next door and selling it is perfectly legal. The reason: under an ad valorem system, the tax collected flexes with the price, so the state has to monitor the distribution chain.
For reference: with soft drinks, the commercial/household distinction exists to protect distributor margins created by the gap between wholesale and retail prices. With alcohol, the distinction exists to levy the liquor tax. That makes the separation clear-cut and legally enforced — so even when the supermarket price occasionally dips below wholesale, a licensed establishment cannot buy there and resell.
Why Korea Adopted the Ad Valorem Tax, and the Controversy
What follows may be uncomfortable reading for those who enjoy their green-bottle soju. But in the interest of honesty, I have written it without softening anything.
Ask anyone to name Korea’s everyman drink and the answer is soju — the one in the green bottle. Originally, though, soju was an upper-class liquor that common people could hardly dream of. Making soju the traditional way takes 1 kg of rice to produce just 300–400 ml — the size of today’s soju bottle. When people barely had rice to eat, a drink that consumed a kilogram of it per bottle could only be a luxury. This is also why prohibition decrees were frequent during the Joseon Dynasty.
So how did soju become cheap? It happened in two stages. The first came during the Japanese colonial period, when Japan built large-scale soju factories and mass production began. The second came after the great crop failure of 1963: in 1965, a law was passed banning the use of staple grains like rice and barley for making soju, and the raw material shifted to a surplus crop — tapioca. A change of raw material is, in a sense, a change of the drink itself. It is fair to say that today’s green-bottle soju is an entirely different drink from the traditional soju of the past.
The ad valorem tax — which favors cheap alcohol — took effect in 1968. In a sense, it was a liquor tax designed with the newly popularized green-bottle soju in mind. It has not been long since South Korea escaped absolute poverty. Had a heavy tax been placed on green-bottle soju back then, only a tiny few could have afforded to drink. And so, although it is a liquor tax, it was pegged to price rather than to alcohol.
But as noted, many point out that it is wrong for a liquor tax to be assessed on price rather than alcohol. There is already a separate tax on price: the value-added tax, charged on every purchase. Alcohol carries an additional liquor tax on top of it — and the reason that tax exists at all is the alcohol content. A tax imposed because of alcohol, calculated on anything but the amount of alcohol, is nothing short of ironic.
The ad valorem tax, one cannot help concluding, was adopted to lighten the tax burden on green-bottle soju — by shifting it onto expensive alcohol such as whisky. And the damage falls not only on premium imports like whisky but equally on traditional Korean liquors carrying our own heritage and culture. Because higher production costs mean disproportionately higher tax, survival in the Korean liquor market hinges on who can produce most cheaply from the cheapest ingredients and thus dodge the most tax. The result is a structure that mass-produces alcohol of barely drinkable quality.
In such a structure, high-quality liquor — not just whisky, but the traditional drinks in which our own culture lives on — simply cannot survive. Right next door, Japan uses a specific tax like most of the world, and its national drink, sake, has been able to flourish spectacularly: individual sake brands cultivate dozens, even hundreds, of rice varieties, such is their devotion to quality.
Korea, by contrast, is a structure where making it cheap is what turns a profit — which is why, had the Korean Wave not made it famous, we would be left with a green-bottle soju almost embarrassing to show a foreign guest. This may be controversial, but anyone who has drunk widely will recognize just how low the quality of our green-bottle soju is. Abroad, alcohol is treated as something that creates synergy with food in taste and aroma — drunk for more than the buzz — and quality is taken seriously. For most Koreans, though, “alcohol” has come to mean something you drink simply to get drunk.
To sum up: today’s ad valorem tax is an ironic tax levied on price rather than alcohol; it shrinks the market for high-quality liquor such as traditional Korean drinks, setting us on the road to becoming a backwater of drinking culture; and although a liquor tax exists to keep alcohol consumption in check, this one instead powers the supply of green-bottle soju — so the total alcohol consumed ends up greater than it would be under a specific tax.
The Future Direction
If South Korea keeps the ad valorem tax as is, the traditional liquor market will keep shrinking, as described above — and eventually vanish. If that happens, we will never escape being a backwater of drinking culture, where low-quality alcohol is consumed in bulk for the sole purpose of getting drunk. Even compared with Japan next door, the gap in drinking culture is wide — wide enough to be perceived as a difference in class, not merely in kind. Hand a foreigner an everyday Japanese sake and a Korean green-bottle soju for a comparison tasting, and they will side with the sake every time. As a Korean, I find that hard to watch.
Unlike in the past, South Korea has escaped absolute poverty. With that breathing room, demand has risen for high-quality drinks — whisky and other imports, and traditional Korean liquor alike. Add to this the growing number of people who drink to savor rather than to get drunk, and the conclusion is clear: Korea should switch to a specific tax, assess tax on the amount of alcohol, bring the price of whisky and traditional liquor down to less than half, and let its drinking culture mature.
In a video on the Korean YouTube channel Bimiriya (비밀이야), I heard the remark that “Koreans are unwilling to pay more for a drink than the price of green-bottle soju” — and it saddened me deeply. When alcohol is paired with food and the two come into harmony, a whole other world opens up. A culture that drinks only to get drunk is, personally, something I lament. Some will say green-bottle soju goes well with food — but honestly, I would gently suggest that this is less about absolute quality and taste than about drinking one’s habits and memories.
Fortunately, the Korean government is aware of the problem. Amendments to the Liquor Tax Act have been discussed for years, and things are changing bit by bit. The recently proposed amendments do not switch from ad valorem to specific tax outright, but they do lower taxes on categories that used to carry heavy rates, allowing them to compete with green-bottle soju. If this leads many people to move on from green-bottle soju to decent-quality drinks like whisky and traditional liquor, and a new culture takes the lead, it will serve as a stepping stone toward the full transition from ad valorem to specific tax.
Still, with the ad valorem system intact, the strict commercial/household separation remains, and the inconveniences in distribution are unresolved. An industry figure quoted in an online article put it this way: “Korea has joined the ranks of developed nations, so moving to the international standard is the right course.” And with younger Koreans — the so-called MZ generation of Millennials and Gen Z — showing keen interest in whisky and other high-quality drinks, the transition from ad valorem to specific tax should be accelerated, so that Korea can become a leader in drinking culture, not a follower.
Next up: “How Whisky Is Made: Ingredients and Their Characteristics, Production Process, and Sales“
Thank you for reading.
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