VIR conference hears beer profits have declined due to controls

At a conference on the law on the special consumption tax (SCT) held on August 14, Le Minh Trang, deputy director of the Retail Research Department at NielsenIQ (NIQ), said that the beer sector saw robust double-digit growth in 2022. However, last year, this sector faced a downturn due to the effects of stricter alcohol concentration regulations under Decree 100, along with economic pressures and a prolonged decrease in consumption demand.

"Over the past 12 months, the beer sector has decreased by 6 per cent compared to the same period last year, especially in the six major cities of Hanoi, Haiphong, Danang, Nha Trang, Can Tho, and Ho Chi Minh City," said Trang, adding that the decline in revenue is also partly due to shifting consumer habits.

According to NIQ's second-quarter research report, half of consumers in Hanoi and Ho Chi Minh City have cut back on discretionary expenses, such as dining out, and are instead economising by cooking at home. "This shift has led to continuous revenue declines for many restaurant chains since the beginning of last year," Trang added.

Chu Thi Van Anh, vice president and general secretary of the Vietnam Beer - Alcohol - Beverage Association (VBA), also highlighted revenue trends. Many businesses in the beer sector have faced revenue and profit declines ranging from single to double digits in recent years.

"Average profit across the industry has decreased, around 6-12 per cent per year in 2021-2022, and last year was 10-12 per cent compared to before," said Anh. "Furthermore, the difficulties faced by beer companies and reductions in the workforce have led to a 10 per cent average annual decline in industry revenue over the past three years."

Based on draft amendments to the SCT law, the tax rate on alcoholic beverages, including beer, is set to increase gradually towards the end of the decade. Specifically, the tax on beer is expected to rise from the current 65 per cent to 90 per cent or 100 per cent by 2030.

With the impact of increased excise tax, the VBA contends that higher taxes will place additional strain on the beer industry. Furthermore, there is a risk that consumers may shift towards cheaper, lower-quality, and potentially illicit products.

The conference on the SCT law, hosted by VIR

Speaking at the conference, Nguyen Thi Cuc, chairwoman of the Vietnam Tax Advisory Association and former deputy director general of the General Department of Taxation, pointed out that a significant and continuous increase in excise tax is unlikely to achieve the intended goals.

"Excessive tax hikes could see an increase in smuggling, with wealthy consumers opting for smuggled beer, while low-income rural consumers might turn to home brewing, which avoids excise tax but compromises quality and public health," said Cuc.

Cuc proposed enhancing measures to manage smuggled beer and, in particular, homemade and illegally produced beer, which poses health risks to the community. "Carefully planning the rate and timing of excise tax hikes will stabilise the market and allow businesses and consumers to adapt to gradual increases through 2030, preventing the shock of abrupt changes," she added.

Le Tuan Anh, director-general of the Department of Industrial Economics under the Ministry of Planning and Investment, noted that a comprehensive evaluation of the timing, scope, and phased implementation is essential to ensure sustainable growth for both the service sector and the broader Vietnamese economy.

"Some sectors, like the food and beverage industry, continue to face difficulties," said Anh. "Despite various initiatives, production and consumption in the beverage industry have not met expectations, with some companies experiencing substantial losses. It is crucial to balance the tax increase to prevent bankruptcies; we must find a rate that generates revenue without adversely affecting these businesses."

Anh also emphasised the importance of implementing effective administrative measures to shape behaviour, and echoed Cuc's concerns that raising taxes could result in increased smuggling.

Changing trends in alcoholic beverage consumption in Vietnam Vietnamese consumers are increasingly favouring drinks brands that prioritise health and environmental sustainability.

Legitimate businesses must not be disadvantaged with alcohol tax The draft Law on Special Consumption Tax, including a high raise in the tax for alcohol, will have great and direct impacts on not only enterprises in the production and trading of alcohol and soft drinks, but also product chains, labour, and social security.

Amended special consumption tax should be applied over next two or three years An amended special consumption tax (SCT) on alcohol should have a reasonable route so that manufacturers have time to adapt to the changes.