Legitimate businesses must not be disadvantaged with alcohol tax

Nguyen Van Viet, chairman, Vietnam Beer-Alcohol-Beverage Association

According to Oxford Economics, the beer industry contributes $555 billion to global GDP, creates 23 million jobs, and contributed $66 billion in taxes to governments around the world in 2019. Although the beer industry only accounts for about 3 per cent of the total workforce, every direct job at the factory creates about 50 indirect jobs in the supporting supply chain.

In the draft law amended by the Ministry of Finance (MoF), the impact assessment has not fully mentioned the position and significant contributions of the beverage industry to society and the economy, the subjects directly and indirectly impacted, consumers, the investment environment, labour, or the competitiveness of enterprises, in addition to protecting public health.

Increasing taxes will create disadvantages and barriers between domestically produced and imported goods, when domestic enterprises are struggling with numerous difficulties in capital, high production costs, and narrowing markets. This is an extremely important legal framework for the beverage industry, and so we hope that the MoF will consider it carefully based on practical situations, scientific foundations, and comprehensive impact assessment.

Since 2020, the alcoholic beverage industry has continuously suffered many major impacts from the pandemic, world political conflicts, and policies restricting alcoholic drinks, leading to an alarming decline in many indicators of output, revenue, and profit of producers. It has been subject to many restrictions from at least four major laws, and policies to support VAT reduction are not applied to the industry.

Consumption demand has decreased due to people’s income being affected after the pandemic. Restaurants and eateries have all reported a sharp decrease in the number of customers, leading to closures or staff cuts, downsizing, and affecting the entire supply chain, even in terms of the tourism and agricultural industries.

Meanwhile, input material prices for the beverage industry have increased by 15-30 per cent compared to 2021. The inventory index of the entire industry in 2023 is estimated to have increased by 120 per cent compared to 2022. The second quarter of 2024 also reported an increase in the inventory index of nearly 128.9 per cent.

Alcohol businesses are also fighting against unknown-origin alcohol, which accounts for nearly 70 per cent of alcohol consumption, causing a loss of the state budget revenue, affecting human health, and also damaging the production and business of legitimate enterprises. Numerous policies and draft laws on VAT, advertising, and increasing the minimum wage are raising the costs of production.

Moreover, enterprises must fulfil mandatory policy obligations on environmental protection from this year, using green raw materials, protecting the environment, and reducing greenhouse gas emissions.

The World Health Organization (WHO) recommends increasing the price of alcohol by at least 10 per cent, thereby increasing the tax rate on alcohol to 80 per cent in 2026 and 100 per cent by 2030. The WHO also makes general recommendations for countries with different development rates and is not specific to Vietnam.

The proposals must be based on and evaluated correctly according to the current situation in Vietnam, feasibility studies when implementing, and so the WHO recommendations are for reference only. The proposal to increase taxes in this important policy needs to have practical research and a feasible roadmap.

When tax increases make product prices higher, consumers will tend to switch to cheaper products, or even fake goods. Increasing taxes will reduce the competitiveness of domestic products. International experience shows that high tax increases will create a large gap in benefits between legitimate and illegal products. Thus, the number of smuggled goods will increase, potentially causing many risks to health and creating costs for market management agencies.

Too many private enterprises produce beer products that imitate major brands and sell them on the market at very cheap prices, almost equal to the production cost without tax. The estimated output of those branded beer products is about 200-300 million litres. The association hopes that the Drafting Committee will refer to more international experiences, especially lessons from neighbouring countries with similar conditions to Vietnam, such as China and Thailand, in order to deal with this.

In addition to the solution of increasing taxes, it is necessary to research and implement solutions and strictly enforce the fight against smuggled, counterfeit, poor quality goods, and goods of unknown origin to protect legitimate businesses, prevent budget losses, and protect the health of consumers.