Feb. 27 (Bloomberg) -- Hong Kong's government abolished taxes on wine and beer after posting a record surplus, boosting efforts to turn the city into a wine-trading hub.

The tariffs will be abolished immediately, costing the city government HK$560 million ($72 million) in annual tax revenue, Financial Secretary John Tsang said today in his budget speech.

Sales by Hong Kong's ``wine-trading and distribution businesses'' may rise as much as HK$4 billion due to the change, he said. About HK$55 billion ($7 billion) is spent on table wine in Asia excluding Japan, he said, citing industry estimates.

``It's a big benefit to Hong Kong's tourism and wine industry,'' said Allan Zeman, chairman of Lan Kwai Fong Holdings Ltd., a Hong Kong-based property developer that owns bars and restaurants. ``The financial secretary is taking a big step.'' His establishments will reduce wine prices by 15 percent to 20 percent starting on Monday, he said.

Scrapping the tax on wine may help Hong Kong become the world's third-biggest hub for wine auctions after London and New York, Tommy Cheung, a lawmaker and chairman of the Hong Kong Wine & Spirits Industry Coalition, said in a phone interview before Tsang's speech.

As much as a quarter of the $200 million to $400 million of wine sold at international auctions is bought by Hong Kong residents, said Boris de Vroomen, who leads a venture in the city between Diageo Plc and LVMH Moet Hennessy Louis Vuitton SA.

London Wine Sales

In London, about 40 percent of the 600 million pounds ($1.2 billion) of annual sales by fine-wine merchants is to residents of Hong Kong, Macau and China, according to a presentation document from the wine industry group. ``Most of that is actually to Hong Kong, although China is growing,'' said de Vroomen, managing director of Moet Hennessy Diageo Hong Kong Ltd.

``More and more of our business is going to Asia,'' John Kapon, president of Acker Merrall & Condit, the oldest wine shop in the U.S., said in a phone interview today. Hong Kong would be ``a good center point'' for wine merchants in Asia, he added.

Acker Merrall & Condit and Bonhams today said they will hold their first Asian wine auctions in Hong Kong to tap rising affluence brought about by economic growth in the city and in China.

Hong Kong reported a record budget surplus of HK$115.6 billion for the fiscal year ending in March 31.

To contact the reporter on this story: Wendy Leung in Hong Kong at wleung12@bloomberg.net

Last Updated: February 27, 2008 05:37 EST