Tax on alcoholic beverages should only be raised after 2025: businessman

Any changes to the special consumption tax (SCT) on alcohol and beer should only be made after 2025 when the Vietnamese economy and businesses bounce back, said Phan Dang Tuat, president of the Vietnam Association for Supporting Industries (VASI) and former chairman of top Vietnamese brewer Sabeco.

Developing the draft revised Law on Special Consumption Tax, the Ministry of Finance (MoF) has proposed an increase to SCT rates on alcohol and beer products and changes to the taxation method. From the perspective of a person with many years of experience in the beverage market, what do you think about this?

Beer and alcohol are consumer goods so they play the same role as everyday foods such as chili and sugar. Their harmful effects only arise when they are abused, so the thing here is to guide consumers on how to use them in moderation.

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 beers with good quality and affordable prices, making them popular among foreign tourists.

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. These sectors employ millions of workers.

However, after being heavily affected by the Covid-19 pandemic, the Russia-Ukraine conflict, and a number of related mechanisms and policies, 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.

While the economy and businesses are struggling, tax increases will push this industry into a difficult situation. Brewers are part of the economy. When they are in trouble, the economy is also on edge. Therefore, at present, the SCT hike should be carefully considered.

The SCT should not be increased at the moment but at least a few years after Vietnam has overcome current hurdles. Some international organizations forecast that the Vietnamese economy will drop in late 2024 and early 2025, and regain growth momentum in 2026.

How do you evaluate the MoF’s proposal to change the taxation method from an ad valorem tax to a hybrid tax which is a combination of an ad valorem tax and a specific tax?

At present, some countries in the world apply a specific tax rate or a hybrid tax rate on alcohol and beer products. However, the beverage markets in these countries have a long history of development, with prices of beer products almost the same. Meanwhile, the situation in Vietnam is completely different, so a specific tax rate is unreasonable.

There are five reasons why a specific tax rate or a hybrid tax rate should not be applied on beer products in Vietnam.

Firstly, tax is a value indicator, it must be calculated based on the product’s value, not output. For example, we cannot impose the same import tax rates on gold and steel because their values are very different. In Vietnam, the highest price for a cup of beer can be 30-40 times higher than the lowest. Output-based taxation will make manufacturers of low-priced beer lose out to those producing high-priced beer. This creates unfair competition among businesses.

The second is consumer interest. Vietnam's per capita income remains low, while 80% of the market share is held by cheap local beers. If producers are hit, Vietnamese consumers will no longer have the opportunity to enjoy beer.

Thirdly, there is a risk of a monopoly. When applying a specific tax rate, high-priced beer will see a decrease in price, while low-priced beer will have its price hiked and production reduced. As a result, the market share of high-priced beer will expand. It may dominate the market and exceed the criteria set in the Competition Law, thus affecting Vietnam's anti-monopoly campaign. Therefore, for a developing economy where there is a big difference in beer prices like Vietnam, output-based taxation is unsuitable.

Fourthly, most businesses will "die" after a tax hike, leading to loss in state budget revenue. With my understanding of this industry, I confirm that if the output-based taxation method is applied, the state budget will lose tax revenue.

Finally, this is not the right time to change the SCT policy on alcohol and beer, both economically and socially. Perhaps, we should discuss the SCT hike in about 2026 when businesses and the economy have survived this period of hardship.

The Investor last Tuesday held a workshop in Hanoi to discuss amendments to the Law on Special Consumption Tax. The event was attended by representatives of ministries, government agencies, National Assembly (NA) members, experts and businesses.

The government is set to forward amended proposals made by the Ministry of Finance to the National Assembly Standing Committee before the relevant bill is placed on parliament’s agenda for its October session.

After getting the NA’s feedback and making further changes, it is expected that the government will submit the bill for approval to the NA working session in May 2024.