Now’s not the time to hike special consumption tax on liquor: workshop

Vietnam should delay any hike in the special consumption tax (SCT) levied on the liquor industry amidst persistent negative impacts of the Covid-19 pandemic, experts and industry insiders say.

A reasonable roadmap over several years was needed to levying any SCT increase or adopting a new taxation method, they said at a Hanoi workshop organized Tuesday by The Investor to discuss various implications and contexts of amendments being considered to Vietnam’s current SCT law.

The Ministry of Finance (MoF) is proposing maintaining the SCT rate on beer at 65% and mull over raising the rate in the future to the point that the price of of the product would increase by 10% as recommended by the World Health Organization (WHO). The ministry also said that it is eyeing a hybrid taxation approach in the future.

In general, across the world, there are three taxation methods – ad valorem tax (also called the relative taxation method), specific tax and hybrid tax. The first is proportional to the value of the underlying asset, while the second remains constant, irrespective of the underlying asset's value. The third is a combination of the two methods.

Prof. Nguyen Mai, chairman of the Vietnam Association of Foreign-Invested Enterprises (VAFIE), said businesses in Vietnam were currently facing “very tough conditions” amidst a slowdown triggered by prolonged economic headwinds. The economy expanded by just 3.72% in the first half of 2023, he noted, arguing that tax hikes should be delayed in such a situation.

Dr. Nguyen Dinh Cung, former head of the Central Institute for Economic Management (CIEM), agreed with Prof. Mai. “Don’t think about increasing the tax budget at this time. Instead, efforts should go to supporting national growth and businesses, which are struggling too much amid so many difficulties.

“Please discuss something else instead of such tax hikes. Just think about the nation’s growth,” he said.

Economist Can Van Luc called for a prudent approach to drafting legal amendments that is based on actual conditions on the ground.

The Vietnam Beer, Alcohol & Beverage Association (VBA) wanted the government to delay any increase in the tax until at least 2024.

VBA chairman Nguyen Van Viet noted that the sector was a major taxpayer in Vietnam that has been facing big challenges over the past few years and that it has yet to recover from the effects of Covid-19.

Besides, the Vietnamese government’s Decree 100, passed in 2019 to prevent driving under the influence and resultant traffic accidents, had affected the sector negatively. The decree bans driving with any concentration of alcohol in the blood.

Businesses selling both foreign and domestic liquor and beer brands present in the Vietnamese market also said an increase in the SCT now would hurt them.

The CEO of major beer maker Sabeco, Bennet Neo, said the MoF’s proposal to amend the law on SCT “holds great importance as it directly impacts domestic beer producers and almost all Vietnamese beer brands, including Sabeco and our Bia Saigon, Bia 333 brands.”

Sabeco operates 26 factories nationwide with 13,000 direct jobs and thousands of indirect jobs created for its suppliers and vendors. The company's 2022 tax payments exceeded VND14 trillion ($592 million), according to Neo.

Neo made three recommendations. “We recommend maintaining the current SCT rate for beer and alcoholic products for next 3 to 5 years at least.

“Secondly, Vietnam should continue to maintain the relative taxation method and adjust the relative tax rates according to a suitable roadmap based on the socio-economic situation, at least in the next 10 years.

“And lastly, the choice of tax calculation method is the decision of each country, but it should be tailored to the specific socioeconomic conditions of that country to ensure both the (international) integration trend and advantages and benefits of the nation itself.”

Neo added: “We firmly believe in the necessity of conducting a thorough impact analysis before implementing any changes to the existing legislation.”

Carlsberg Vietnam’s senior financial director Thieu Hong Nhung echoed Neo, saying Vietnamese policymakers should delay the amendment of the current law for two to three years, because “businesses are facing an extremely tough period and the top priority should be supporting them.”

She also felt that the ad valorem tax method should be maintained in the coming time.

Pham Thu Thuy, chief accountant at Hanoi-based brewery Habeco, in which an almost 82% stake is held by the government, said there needs be some delay in changing the current SCT law to help businesses’ post-pandemic recovery. Like other peers, she also supported the ad valorem tax method for Vietnam, which she noted was a developing country, not a developed one.

Nguyen Thanh Phuc, external relations director of Heineken Vietnam, in which the state holds a 40% stake, said he shared the opinions expressed by representatives of Sabeco, Carlsberg and Habeco.

“The government and policymakers should think over tax hikes at present.”

Phuc felt that the tax hike should be delayed and a hybrid taxation method may be suitable after five years, not now.

EY Vietnam CEO Huong Vu argued that the government should maintain the ad valorem tax method for now and think of changes later, because Vietnam was not yet a developed country.

Phan Duc Hieu, a permanent member of the National Assembly’s Economic Committee, said that any legislation change must ensure fair competition among different groups of businesses and therefore, lawmakers and policymakers need to consider real conditions carefully.

He said such caution was necessary in deciding when an amended SCT law should be implemented and what method is used for tax calculations.

"SCT rates should be applied differently to different products. We need to give time to companies to recover and time to adjust to changes," he added.