Vice tax gets nod from NA Standing Committee

The National Assembly Standing Committee has approved an SCT hike on cigarettes, beer and spirits, Photo: Le Toan

The move is aimed at limiting consumption of these products and generating more revenue for the state budget.

At last week’s National Assembly Standing Committee meeting, Minister of Finance Dinh Tien Dung proposed an amendment to the Law on Special Consumption Tax (SCT) under which rate hikes would be applied to cigarettes and beer (see box 1). He said the SCT on wine and spirits over 20 proof would increase from the current 50 to 65 per cent, and 25 to 35 per cent for wine and spirits less than 20 proof.

These SCT increases will be further discussed at the 13th National Assembly’s eighth session slated for this October-November.

“We need to increase the SCT on these products to limit their consumption and help raise funds for the state budget, which is facing mounting difficulties,” said Phung Quoc Hien, head of the National Assembly’s Finance and Budget Committee. “During the 2015-2018 period, Vietnam will have to reduce import taxes on many types of goods, and this will further inhibit budget revenue”.

National Assembly Vice Chairman Uong Chu Luu said he totally agreed with this proposal. “But we must take into account the effect on enterprises.”

Luu’s view was echoed by the whole National Assembly Standing Committee, including National Assembly vice chairwomen Nguyen Thi Kim Ngan and Tong Thi Phong, who both said the SCT increase was vital to helping bolster the state budget.

According to the government’s report on the amendment, the SCT increase would supply a major source of revenue to the state budget (see box 2).

The report noted that Vietnam was listed as one of the world’s top 15 countries in terms of the most smokers.

According to the Ministry of Health, Vietnam reports more than 50,000 deaths a year from smoking. This figure is likely to soar to over 70,000 by 2030 if Vietnam does not promptly create anti-smoking measures.

The report also said alcohol abuse was a major health concern, and added that it also contributed to social disorder, crime and traffic accidents.

However, Deputy Minister of Industry and Trade Do Thang Hai disagreed with the proposal, saying that a roadmap was need for the SCT to increase gradually, as sudden increases would hurt enterprises.

“For example, increasing the SCT on cigarettes will likely lead to more smuggling, which is already causing a $200 million loss per year to annual producers. It will also affect enterprises’ revenue and industry employees,” he said.

Nguyen Van Viet, chairman of the Vietnam Beer-Alcohol-Beverage Association (VBA) told VIR in a recent interview that beer makers were extremely worried that domestic beer firms would lose even greater market position if the newly proposed SCT is passed into law.

Viet said the increased SCT would make consumers unhappy. “Vietnamese people prefer domestic beer such as Hanoi, Saigon and Truc Bach because the price is affordable compared to foreign brands, the most popular of which are Heineken and Carlsberg. Two domestic beer companies, namely Habeco and Sabeco, still hold a total two-thirds market share.

“If the SCT rates increase, foreign enterprises will feel little effect because their customers are generally higher income earners, while domestic beer firms supply all walks of life including low and middle-income earners. Domestic firms’ sales may fall if their prices after the SCT increase are less affordable,” Viet said.

“Policy makers should take a long-term perspective to the SCT and raise the tax step by step. A previous skyrocketing increase of 15 per cent could cripple domestic beer firms,” stressed Viet.

A cigarette expert from a foreign tobacco brand in Vietnam said the increase would seriously damage cigarette firms and force them to pass their losses on to consumers in the form of higher prices.

He said the total current tax imposed on cigarettes came to 75-80 per cent after SCT, VAT and import tax are all accounted for.

“Undoubtedly firms will struggle if the SCT is increased,” he affirmed.