Excise tax change to be considered carefully for all

Can Van Luc, chief economist, BIDV

For the beverage industry, in addition to the general difficulties of all businesses, these industrial firms are struggling with their own challenges. They are not entitled to the VAT support cut policy for alcoholic beverages, they were strongly affected by the recent pandemic and the introduction of new drink-driving rules, and the price of some raw materials has risen by as much as 40 per cent.

Beverage firms are also fighting against complicated smuggling and counterfeiting of wine and beer. Lifestyles and consumer behaviour have changed so much and required businesses to adapt.

The business results of the entire industry have declined over the years. According to Statista, the total revenue of the Vietnamese beverage market in 2023 was about $27.12 billion, while $10 billion of this came from the non-alcoholic beverage segment; alcoholic beverages were about $17 billion.

The average profit of the entire industry decreased by 12 per cent in 2021, 6 per cent in 2022, and 10-12 per cent on year in 2023. The state budget revenue of the whole industry reduced by an average of 10 per cent annually in the last three years, according to the Vietnam Beer-Alcohol-Beverage Association.

The beverage industry contributes about $2.4 billion to the state budget every year, so the draft law on SCT affects not only businesses but also the state budget. This can raise state budget revenue in the short term, but it will reduce consumer demand, reduce business revenue and profits in the medium and long term. Thereby, collection of SCT and corporate income tax will go down.

Moreover, increasing taxes on sugary drinks may not help reduce the rate of obesity and cardiovascular diseases, which have been caused by other reasons. Rising taxes does not help reduce pressure on the state budget to support healthcare.

A sharp and rapid raise in SCT on alcoholic beverages may double difficulties for businesses and workers in the beverage industry and related industries such as packaging, transportation, tourism, and catering services. Furthermore, the draft law also provides the same level on all drinks with different alcohol concentrations. It is difficult to regulate consumer behaviour.

Therefore, I recommended that the draft law should have a harmony of interests, responsibilities, and feasibility for the state, businesses, and consumers, based on carefully impact assessment, and a scientific and practical analysis.

The draft should calculate the tax rate, timing, and roadmap for appropriate tax increases. The law should ensure more fairness and reasonableness by applying different tax rates on every alcohol concentration, and sugar content.

Nguyen Thi Cuc, chairwoman Vietnam Tax Consultants’ Association

Currently, non-alcoholic beverages and soft drinks are not subject to SCT in Vietnam. The SCT policy for alcoholic products has been changed 12 times since 1990 in terms of taxable products, rates, and alcohol concentration.

The high and continuous increase in SCT may not be as effective as the target to reduce consumption of alcohol, and mitigate the harmful effects of heavy drinking on people’s health. People will be able to access smuggled goods in the premium segment, or self-make products in rural areas, which do not ensure product quality and greatly affect people’s health.

We suggest the drafting committee considers further study of the impact of rapid and high tax increases on the market, production and business activities, consumers, and public health. We should consider extending the tax rate period in the roadmap so that businesses have enough time to find solutions and build plans. The SCT rate should be raised by 5 per cent in the first year, and remain there for a few years before the next adjustment, instead of SCT climbing every year in the current draft law.

Additionally, it is necessary to carry out drastic measures against smuggled goods and strengthen the management of homemade alcohol without business registration, food hygiene, and safety standards, which easily cause poisonings and deaths.

Bui Thi Viet Lam, country representative US-ASEAN Business Council

SCT on alcoholic beverages varies greatly among countries, depending on economic, socio-cultural factors, people’s income, management policies, drinking age, import tax, and informal products.

Around the world, SCT contributes to surging the state budget, orient production and consumption, and protect people’s health. Malaysia experienced a tax shock in 2014-2015 by raising SCT consecutively. The sudden and high tax increase did not help the government achieve its goals, but created negative domino effects in the market, causing loss of government revenue, factories to close, and many people to lose their jobs.

The Australian government estimated a deficit of AU$170 million ($114 million) in 2023 due to the surge in alcohol tax, which not only causes a loss of budget revenue but also contributes to inflation and pressure from the cost of living.

In China, import taxes on alcoholic beverages have been gradually reduced and eliminated in line with commitments in free trade agreements. It is applying a low SCT rate at 10-25 per cent. Illegal alcohol consumption accounts for about 25 per cent only. This fact shows that a reasonable tax policy helps stabilise budget revenue while reducing illegal alcoholic beverages.

Alcohol tax has long been an important source of revenue for the Chinese government. In 2017, about ¥30 billion (around $4.5 billion) in excise tax was collected from the liquor industry, making it the fourth-largest contributor to total excise tax revenue that year.

Thailand announced tax cuts on alcoholic beverages and entertainment venues to boost tourism. Specifically, it introduced numerous measures to boost tourism-related consumption through alcohol-related policies, including amending the SCT and simplifying the tax on wine.

The Vietnamese government should refer to international experiences to apply it in a harmonious and reasonable manner suitable to the specific conditions and circumstances of the country. It is necessary to comprehensively assess the impacts on direct and indirect subjects, the economy and society to avoid negative, widespread, unwanted or even adverse effects.