Finance ministry proposes higher tax on alcohol, beer

Vietnam’s Ministry of Finance (MoF) has proposed a higher special consumption tax (SCT) on alcohol and beer which would mean prices would increase by at least 10% to match income growth and inflation.

In its proposal to the government, the ministry stated that the amendments and supplements to the Law on Special Consumption Tax in recent years have had a positive effect on many aspects of socio-economic life.

They have contributed to orienting production and consumption, regulating and redistributing income, ensuring social justice, protecting the environment, realizing Vietnam's commitments to the World Trade Organization (WTO), ensuring compliance with international practices, and stabilizing state budget revenue.

However, Vietnam’s SCT policy still lags behind international practices, and fails to achieve the goal of restricting consumption and regulating spending among high-income earners, it said.

"The Law on SCT needs to be amended and supplemented to solve arising problems; encourage a shift to import, production and use of environmentally friendly products; and limit the consumption of goods harmful to public health, especially children," it noted.

The 2014 revised Law on SCT stipulates that for alcohol of 20% or more, the SCT rate should be 55% from January 1, 2016; 60% from January 1, 2017; and 65% from January 1, 2018. For alcohol below 20%, the rate was set at 30% from January 1, 2016 and 35% from January 1, 2018. For beer products, the rate was 55% from January 1, 2016; 60% from January 1, 2017; and 65% from January 1, 2018.

The MoF proposed three options for the SCT on alcohol and beer products. The first is to keep the current rates as planned. The second is to increase rates which would raise prices by at least 10% as recommended by the World Health Organization (WHO), with a roadmap matching income growth and inflation.

The third is to apply a mixed SCT (proportional tax and flat-rate duty) on beer. The proportional tax rate on beer would raise prices by at least 10% as recommended by the WHO, with a flat-rate duty to be added. Meanwhile, a higher SCT rate would be imposed on alcohol to hike prices by at least 10% as recommended by the WHO, with a roadmap matching income growth and inflation.

"Vietnam is in the stage of international economic integration, with many free trade agreements signed, so import tax tools to protect domestic production will be gradually removed,” the ministry said.

In addition, the price of domestically produced beer is usually much lower than that of imported beer. Therefore, if a flat-rate duty is added, domestically produced beer will be less competitive than imports and not in line with international practices.

Developed countries often impose flat-rate or mixed taxes on products with similar prices and quality, while developing countries often apply proportional taxes because products have a big difference in price and quality, it added.

The MoF said that with the difference in quality and prices of alcoholic beverages in Vietnam, the application of a flat-rate or mixed tax on alcoholic beverages was not appropriate, so the second option was the most suitable.

Developing draft law to suit Vietnam

Commenting on the bill, experts shared the same view that the SCT should be consistent with international practices, with the situation in Vietnam taken into account.

Since the country's integration and reform, people's living standards have improved, tourism has developed, and the alcoholic beverage industry has boomed. Local breweries produce Vietnamese-branded beer with good quality and affordable prices, making it popular among foreign tourists. It is estimated that local beers hold 80% of the market share.

The alcoholic beverage industry has proved its increasingly important role in promoting socio-economic development and creating jobs for local laborers. On average, each year, breweries contribute VND50-56 trillion ($2.1-2.4 billion) to the state budget and created jobs for about 79,000 people from 2010-2020.

Accompanying the development of the industry are ecosystems in the fields of agriculture, logistics, mechanics, biochemistry, packaging, and services, they added.

However, after being heavily affected by the Covid-19 pandemic, the Russia-Ukraine conflict, and a number of mechanisms and policies related to the industry (Law on Prevention and Control of Harms of Liquor and Beer Abuse and Decree 100/2019/ND-CP), the beverage industry is currently dealing with many difficulties.

This industry’s production and sales in 2022 decreased 6% and 8%, respectively, compared to 2020-2021. With revenue falling sharply, businesses have been forced to cut jobs.

In that context, experts said there should be careful consideration and evaluation before any changes on tax for these products are made because they would directly affect prices and consumption, and may even "squeeze" businesses that have suffered a lot from the pandemic and are struggling to maintain production.

The experts said that each country can choose a taxation method meeting its socio-economic conditions in order to ensure the integration trend as well as national advantages and interests.

Although mixed and flat-rate taxes have been applied by many countries, for a developing country like Vietnam maintaining the current rates is necessary to guarantee the interests of Vietnamese consumers, they said.

Some experts raised concerns that changing the taxation method at present may harm the majority and unwittingly support a small group with great potential. Therefore, the policy needs to look at solutions that help increase budget revenue but still help businesses recover and develop while creating a balance to nurture future revenue.