Experts recommend delaying the tax increase on alcohol and beer to stabilize the market

At the workshop “Tax amendment to promote business activities” organized by Investment Newspaper on August 14, experts said that the proposal to increase taxes needs to be studied in practice, have a feasible roadmap and consider the endurance of businesses.

Need for policy stability

The draft Law on Special Consumption Tax (amended) is being drafted by the Ministry of Finance and is expected to be commented on by the 15th National Assembly at the 8th session (October 2024) and approved at the 9th session (May 2025).

In particular, the Ministry of Finance proposed to increase the special consumption tax rate on alcohol and beer products and add sugary soft drinks to the list of subjects subject to special consumption tax.

Workshop “Tax reform to promote business activities” organized by Investment Newspaper on August 14. (Photo: Chi Cuong)

Expressing her views on this issue at the workshop, Ms. Nguyen Thi Cuc, Chairwoman of the Vietnam Tax Consulting Association, former Deputy Director General of the General Department of Taxation, said that it is necessary to carefully study the level of tax rate increase as well as a reasonable increase roadmap to ensure the maintenance of production and business activities, and jobs for workers in the supply chain from raw materials, production, trade, and food services.

At the same time, according to Ms. Cuc, carefully studying the increase level and roadmap for increasing special consumption tax will also create conditions to stabilize the market, help businesses and consumers adapt to the gradual tax increase until 2030, and avoid being shocked by rapid and sudden increases.

“Adjusting tax rates on alcohol and beer products needs to aim at a special consumption tax policy that is in harmony with the goals and appropriate to the specific context. Increasing special consumption tax at a high and continuous level is unlikely to bring about the desired results. It is possible that increasing taxes will increase selling prices and limit the production of alcohol and beer, but it will not necessarily achieve the goal of reducing alcohol and beer consumption.

For example, high tax increases lead to an increase in smuggled goods, high-income consumers switch to drinking smuggled wine and beer. Rural consumers with low incomes switch to self-sufficiency and self-sale for profit by making and mixing their own wine, not paying special consumption tax, not ensuring product quality, affecting people's health," Ms. Cuc analyzed.

Special consumption tax is an indirect tax, included in the selling price of alcohol and beer. In principle, increasing the tax will increase the selling price of the corresponding product. However, limiting consumption does not only depend on increasing special consumption tax, but also requires implementing many other measures to ensure that goal.

“The implementation of Decree 100/2019/ND-CP of the Government regulating administrative penalties for traffic violations has significantly reduced the number of drivers drinking alcohol, which is a testament to this,” said the Chairman of the Vietnam Tax Consulting Association.

Ms. Huong Vu, General Director of EY Vietnam Consulting Joint Stock Company. (Photo: Chi Cuong)

Similarly, according to Ms. Huong Vu, General Director of EY Vietnam Consulting Joint Stock Company, for the alcohol and beer industry, she supports the relative tax calculation method - this is also the method that Vietnam committed to when joining the WTO. "This method is not only suitable for the Vietnamese market but also ensures fairness between market segments, when the price difference between premium beer and popular beer is still large," Ms. Huong Vu said.

Regarding tax rates, Ms. Huong Vu emphasized the need for careful research to harmonize the interests of producers, the Government and consumers. She said that if the management agency only focuses on increasing revenue without considering the interests of producers and consumers, it could lead to undesirable consequences such as reducing the competitiveness of businesses, even the risk of bankruptcy, thereby reducing tax revenue.

“Tax rates should be gradually phased out instead of suddenly increasing to 70% or 80% as in the current draft. This not only gives manufacturers time to adjust but also ensures that there is no “shock” for businesses and consumers,” Ms. Huong Vu frankly said.

Ensure consumer benefits

The sudden tax increase is one of the reasons why consumers switch to cheap, low-quality home-made products. In fact, in addition to the official beer and wine market, there is also an unofficial beer and wine market that has been growing strongly for decades.

Estimates from the Central Institute for Economic Management (CIEM) in early 2022 show that alcohol from the informal sector, specifically craft and smuggled alcohol, is estimated at about 385 million liters/year, of which craft alcohol accounts for 70 to 90% of this figure. And of course, with more than 380 million liters of alcohol, the State does not collect a single penny in tax.

When taxes on official alcohol products are adjusted to increase too quickly, consumers switch to using more unofficial alcohol products. Moreover, looking at historical data, a sharp increase in special consumption tax does not help change consumer behavior.

Mr. Nguyen Van Phung, Former Director of Large Enterprise Tax Management Department (General Department of Taxation, Ministry of Finance). (Photo: Chi Cuong)

At the Workshop, Mr. Nguyen Van Phung, Former Director of Large Enterprise Tax Management (General Department of Taxation, Ministry of Finance) informed that statistics from 2003 to 2016 based on data from the Beverage Association and the Beer and Alcohol Association and the General Department of Taxation showed that in the past 13 years, from the average beer/alcohol consumption per capita of 3.8 liters/person/year increased to 6.6 liters/person/year in the period from 2008 to 2010.

By 2016, the peak economic growth period of the recent period, this consumption level reached 8.3 liters/person/year. Thus, from 2003 to 2016, it is clear that the average beer and alcohol consumption per capita has increased more than 2 times.

“From that, it can be seen that increasing special consumption tax does not help change consumer behavior. Consumer behavior actually changes due to Decree 100. So it is clear that administrative measures have more effect than taxes,” Mr. Phung said and proposed to continue extending administrative measures, because these measures have a much stronger impact than using tax tools.

Speaking on the sidelines of the workshop, Mr. Phung said that businesses and people are the entities that generate income, so tax collection must be appropriate for people, appropriate for income levels, and appropriate for consumption.

In Vietnam, if we immediately apply the absolute method or the mixed method, it will cause shock and damage to businesses and consumers because most of us have average incomes and do not have enough finances to consume the price segment of millions of dong for a bottle of wine, hundreds of thousands of dong for a bottle of beer.

“We can only consume products at a modest level, for example 15,000 - 20,000 VND per can of beer. So imposing a tax at a percentage rate is reasonable,” said Mr. Phung.

In addition, Mr. Phung emphasized that when increasing special consumption tax, the authorities need to have communication campaigns so that consumers accept the price. At the same time, businesses need to accept the impact on the production and business process.

Source: https://baodautu.vn/chuyen-gia-kien-nghi-gian-lo-trinh-tang-thue-ruou-bia-de-on-dinh-thi-truong-d222415.html