Tax changes require more scientific basis

What is your opinion on the Ministry of Finance’s proposal to tax alcohol, beer, and soft drinks?

From a comprehensive perspective, considering both public opinion and research, I see some improvements in this draft compared to earlier versions. Firstly, the draft has incorporated public feedback by avoiding the immediate application of mixed or flat-rate duties methods.

Nguyen Van Phung, former director of the Department of Tax Administration for Large Enterprises

In Vietnam, the abrupt implementation of flat-rate or mixed methods could adversely affect both businesses and consumers, as most have average incomes insufficient for high-end alcohol and beer consumption. Typical consumption levels are modest – around 60-80 US cents per can of beer, or about $4 per bottle of standard Vietnamese liquor. Thus, applying a percentage-based tax or ad valorem tax seems more reasonable, and I commend the drafting committee for adopting this approach.

Research shows that while the aim of increasing taxes is to raise product prices, alter consumer behaviour, protect health, and maintain social order, the results have been mixed. For instance, per capita alcohol consumption rose from 3.8 litres per person per year in 2003-2005 to 8.3 litres in 2015-2016, despite steadily increasing beer tax rates – from 45 per cent in 2010-2012 to 65 per cent from 2018 onwards.

Alarmingly, alcohol-related violence increased from 1.4 per cent of the population in 2010 to 14.4 per cent in 2016, a 10-fold increase, despite annual tax hikes.

It wasn’t until the government implemented stricter drink-driving rules in 2019 that we began to see a change in such behaviour. This suggests that administrative measures might be more effective than tax increases alone.

The first option is to increase taxes steadily by 10 per cent each year, reaching 100 per cent by 2030. While this approach aligns with the idea of using strong tax increases to immediately change behaviour, I am concerned that the impact assessment may not be comprehensive enough. The figures provided are relative and do not fully align with the impact assessment study conducted by the Central Institute for Economic Management.

Increasing taxes can be beneficial, but it remains uncertain whether immediate tax increases will guarantee business development. We need further research based on scientific studies and comprehensive economic models before recommending either option to the National Assembly (NA).

The drafting committee currently proposes implementing option 1, which aligns with the government-approved tax improvement programme goals set for 2030. These goals include increasing taxes, such as special consumption tax, to fund budget expenditures, ensure national defence and security, and support social welfare.

The sudden tax increase will cause many businesses to face significant difficulties. Would it be possible to delay the increase?

At this point, I cannot definitively answer whether the tax increase can be delayed. As mentioned, both options need to be carefully studied based on scientific data. We have only just started soliciting opinions from NA deputies in October, and the proposal will not be approved until May 2025.

There is still time for thorough research, especially regarding the two proposed options. We need to consider multiple perspectives and gather expert opinions carefully. Therefore, I cannot provide a definitive answer on whether the tax increase can be delayed.

This tax revision has many stated purposes. What is the main purpose? Is it for the budget, for consumers, or for businesses?

In my view, the primary purpose of increasing taxes is not solely to ensure consumer health but to implement the NA’s resolution on restructuring the state budget, promoting green and clean development, and ensuring long-term stable public health.

Taxes primarily aim to create revenue sources for the state budget. At the same time, tax collection impacts and changes behaviours in production, consumption, and income. It also affects supply-demand relationships and social dynamics.

However, taxes are not a panacea. The main goal remains to generate income for the state budget. Tax adjustments are part of a broader strategy, especially in the current context where fighting corruption is crucial. Tax policy must be impartial, effective, and thoroughly researched.

Regarding the two proposed options, it is understandable that businesses have voiced concerns. Sudden adjustments can make it difficult for businesses to adapt, so extensive, careful investigation and opinion gathering are necessary.

How can we increase the budget?

This is a challenging issue. Businesses and individuals generate income, so tax collection needs to be appropriate for income levels and consumption patterns. All tax adjustment options must be carefully calculated, considering multidimensional impacts to maximise revenue while protecting consumer interests.

To ensure reasonable budget revenue while restructuring tax sources, various taxes must be adjusted. Additionally, communication campaigns are needed to help consumers accept higher price levels and encourage manufacturers to improve their technological processes, innovate formulas, and reduce harmful substances.

Currently, businesses focus too much on advertising rather than improving products and production processes.

VIR conference hears beer profits have declined due to controls Beer industry revenues have fallen by 6 per cent across the country and by 11 per cent in six major cities in the last 12 months due to stricter alcohol concentration regulations as well as consumer preferences.

Building a reasonable roadmap for increasing SCT 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.

Consumer beverage trends must be taken into account The alcoholic beverage market in Vietnam is undergoing a significant transformation due to new consumer trends and particularly the enforcement of stricter concentration policies. Le Minh Trang, associate director of the Retail Measurement Service at NielsenIQ (NIQ) Vietnam, talked to VIR’s Hoang Oanh.