Building a reasonable roadmap for increasing SCT

August 19, 2024 | 12:00

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After 16 years of implementation, the current Law on Special Consumption Tax (SCT) has achieved significant results, but the amendment of the law is necessary with a specific roadmap to enhance comprehensive alcohol management measures.

Building a reasonable roadmap for increasing SCT

Nguyen Thi Cuc, chairwoman, Vietnam Tax Consultants’ Association

Decision No.508/QD-TTg dated April 2022 on approving the Tax System Reform Strategy towards 2030 stipulates the research and application of a combination of proportional tax rate and absolute tax rate to a number of goods and services subject to SCT in Vietnam.

Developed countries often apply tax on a specific amount for a litre of alcohol, or a compound tax. Meanwhile, developing countries often apply compound tax and ad valorem tax (the amount is based on the value of a transaction/goods). Countries like Laos, Cambodia, and Myanmar apply ad valorem tax like Vietnam. Thailand did apply ad valorem but switched to compound tax.

In Vietnam, during the process of collecting feedback on the draft law on SCT, there are different opinions on the tax calculation method. Some businesses in the alcohol industry propose switching to a compound tax, while a majority of businesses prefer to maintain the current ad valorem tax. After collecting opinions from ministries, localities, associations, businesses, and independent experts, the drafting committee has decided to calculate tax using the ad valorem tax.

Based on the current business operations in the alcohol industry in Vietnam, I agree with the current draft law to apply a compound tax for tobacco products, while alcoholic and beer products apply ad valorem tax.

Decision 508 stipulates the review, study, amendment, and supplementation of those subject to SCT to regulate consumption in line with the shift in consumer trends in society and the government’s direction.

Furthermore, the decision also emphasises the need to develop a roadmap for adjusting and increasing taxes on tobacco, beer, and alcohol products to limit production, consumption, and fulfil international commitments. It also calls for a review and adjustment of the SCT rates for certain items to align with the economic and social conditions during this decade.

According to a 2023 decision, the tax rates for alcohol will be specified as a percentage increase annually from 2026 to 2030 to achieve the goal of raising the prices of alcohol by at least 10 per cent as recommended by the World Health Organization.

The Vietnam Tax Consultants’ Association representatives fully agree with the perspective of increasing the SCT rates for alcohol based on percentage increments from 2026 to 2030 to achieve the goal of raising prices, limiting consumption, contributing to reducing the harmful effects of excessive alcohol consumption, and ensuring community health.

However, we need to carefully study the extent of the tax increase and prepare a suitable roadmap to ensure the continuity of production and business activities, as well as the livelihoods of workers in the supply chain from raw materials, production, trade, food, and beverage services. This also creates conditions for market stability, helping businesses and consumers adapt to the gradual tax increase towards 2030, avoiding sudden and rapid shocks.

Article 8 of the draft tax increase roadmap has provided a number of specific provisions. For items including alcohol from 20 degrees or more, as well as beer, there are two options. The first is adjusting the tax rate in 2026 to 70 per cent, an increase of five per cent compared to the current rate, with an additional 5 per cent increase each year thereafter, reaching 90 per cent by 2030.

The second option is adjusting the tax rate to 80 per cent in 2026, an increase of 15 per cent compared to the current rate, with an additional 5 per cent rise each year thereafter, reaching 100 per cent by 2030.

For alcohol products under 20 degrees, there are also two options. First is adjusting the tax rate to 40 per cent in 2026, an increase of 5 per cent compared to the current rate, with an additional 5 per cent increase each year thereafter, reaching 60 per cent by 2030. The second is adjusting the rate to 50 per cent, an increase of 15 per cent, with an additional 5 per cent increase each year thereafter, reaching 70 per cent by 2030.

Based on that, we propose to choose option 1 of the draft law, while extending the time for adjusting the tax rate by five per cent annually to a minimum of two years.

SCT is an indirect tax that is embedded in the selling price of alcohol. In principle, increasing the tax will raise the selling price of the products accordingly. However, limiting consumption depends not only on the increase in SCT, but also on the implementation of various other measures to ensure the goal.

Stricter drink-driving rules in recent years regulating the sanctioning of administrative violations in road and railway traffic have significantly reduced the number of drivers under the influence of alcohol, serving as evidence of its effectiveness.

In addition to increasing taxes, authorities need to enhance measures to control the smuggling of alcohol, especially homemade or unverified products. This could lead to consequences such as illegal alcohol trading, lack of quality assurance, and affecting community health. Alcoholic beverages made with industrial methanol which is toxic to internal organs, the nervous system, and vision, and can be fatal. Self-brewed alcohol must meet quality standards, obtain production and business registration, and pay SCT and VAT.

We expect that the calculation and determination of the SCT policy in this amendment of the tax law will aim for a more balanced approach towards protecting public health, ensuring business stability, providing employment for workers, and contributing revenue to the state budget.