Market for beverage ripe for change

March 18, 2019 | 08:00
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Many provisions set out in the EU-Vietnam Free Trade Agreement would directly and positively impact the Vietnamese market for spirits, making it one of the most promising markets in Asia, but European businesses have outlined key challenges in market access, including the ban on selling alcohol on the Internet and unstable tax policies.
market for beverage ripe for change
EU-Vietnam Free Trade Agreement

Paul Auriol, co-chairman of the EuroCham’s Wine & Spirits Sector Committee, said on the sidelines of the Eurocham’s 2019 White Book Launch ceremony themed “The EVFTA: Driving Industry Digitalisation and Transformation for Vietnam’s Socio-economic Prosperity” last week that liquor business is a conditional business but it is not prohibited by any legislation in Vietnam, regardless of its strength, and the Internet is merely a tool to do business. No other conditional business line prohibits sales on the Internet. Thus, this prohibition does not only restrict legitimate business but it is also against Vietnam’s efforts and policies to promote the digital economy and the Fourth Industrial Revolution.

market for beverage ripe for change
Paul Auriol, the co-chairman of Eurocham’s Wine and Spirits Sector Committee (on the left), Patrick Castanier, the co-chairman of Eurocham’s Wine and Spirits Sector Committee (on the right)

Currently, many markets allow the electronic sales of alcohol products regardless of their strength. In the Asia-Pacific, for instance, these markets include China, Cambodia, Hong Kong, Japan, Malaysia, the Philippines, and Singapore. Other markets such as France, Germany, the United Kingdom, and the United States do not prohibit such sales channels either. Therefore, the prohibition of e-commerce for alcohol products would be inconsistent with common regional and international trends and make Vietnam an anomaly in the region, Auriol said.

According to him, experience with e-commerce in the countries which allow it reveals that it helps to improve transparency and tax collection, as payments are made by bank cards or bank transfer, and thus improve the integrity of the tax system. E-commerce allows governments to actively track alcohol sales and helps local authorities to develop a more holistic understanding of total alcohol consumption. Internet technology also helps to prevent under-aged buyers by screening the buyers’ profiles and their relationship or communications with others on the Internet.

According to a recent report by the World Health Organization (WHO), recorded wine and spirits in Vietnam account for less than 3 per cent of total alcohol consumption. Therefore, it has been questionable whether the e-commerce ban on these products will help to control the harmful consumption.

Auriol said that the e-commerce ban actually creates an environment for illegitimate alcohol to be traded on the Internet. Currently, despite of the ban, it is not difficult for consumers to find and purchase alcohol products online. However, as such sales are not compliant with the regulations, consumers that choose to purchase from these channels are not offered the same certainty about the origin of the products as those buying from authorised retailers.

“This exposes them to greater risk of purchasing smuggled, low-quality or counterfeit products which could have severe health implications for consumers,” Auriol said. “Until now, there have not yet been any assessments on the impacts of this prohibition on controlling the consumption of wines and spirits.”

It may be time to review the ban. At the debate on the draft Law on Prevention and Fighting Against the Harmful Impacts of Beer and Liquor, most National Assembly deputies have raised concerns about the ban and recommended it for more reconsideration.

Deputy Ha Thi Lan representing the northern province of Bac Giang, said, “I requested that this provision be reconsidered because it is not consistent with the e-commerce trend. Moreover, the provisions are not feasible. I recommend that instead of banning, the draft law should include conditions for selling alcohol over the Internet.”

Another concern raised at the discussion of the Whitebook launching ceremony are tax instabilities. Patrick Castanier, co-chairman of the Eurocham’s Wine and Spirits Sector Committee, said that the industry has seen the special consumption tax (SCT) law changed five times in the past 15 years (2003, 2005, 2008, 2014, and 2016).

“The EU wine and spirits industry has suffered from the changes introduced by the SCT law of 2016, which not only increased the tax rate from 50 per cent in 2015 to 55 per cent in 2016, and to 65 per cent in 2018, but also adjusted the taxable price of cost, insurance and freight (CIF) charge to wholesaler prices,” Castanier said.

“As a consequence, these reforms have significantly increased the total tax burden on EU wine and spirits exported to Vietnam and will potentially cancel out the benefits of tariff reductions on these products negotiated under the EVFTA, thereby limiting the potential development of the market.”

With intensive experience in the industry across the region, Castanier commented that the increased SCT may lead to a substantial loss of sales of legal imports and an increase of illegal counterfeit products.

“Excessive ad valorem taxation, often exacerbated by high import duty, encourage illicit activities such as counterfeiting and smuggling of imported wine and spirits,” he said. “This is a common problem in other ASEAN members like Indonesia. As a consequence, the government may see some revenue increase in the short term, but will experience a loss in budgetary revenue in the long term.”

On whether the tax increase will help address the public health issue, Castanier stated that he has not been aware of any countries where public health was improved after the tax was increased.

By Phuong Thu

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