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A Taxing Matter: How Increased Excise Taxes on Alcohol Could Stangle Enterprises and Harm Vietnam’s Economy

1 December, 2024

During the afternoon of November 27, the National Assembly, chaired by Mr. Tran Thanh Man, continued its 8th session, discussing the Law on Special Consumption Tax (amended) in the hall. Mr. Nguyen Duc Hai, Vice Chairman of the National Assembly, facilitated the meeting.

One of the main topics of discussion among the delegates was the roadmap for increasing special consumption tax on alcohol and beer, with the majority agreeing on the need to postpone the implementation timeline and consider separate tax rates for each item.

A SUITABLE ROADMAP IS NEEDED TO GIVE BREATHING ROOM TO ENTERPRISES

Ms. Huynh Thi Phuc, a delegate from Ba Ria Vung Tau Province, emphasized: “The pace of tax increases on beer and alcohol has left businesses that have invested in Vietnam, especially modern factories that have not yet utilized their full capacity, unable to adjust their output in a short period.”

Given the recent decline in consumption due to health and road safety concerns, Ms. Phuc believes that if the special consumption tax rate continues to be applied in the coming years, it will significantly impact factories, workers, and value-added and corporate income tax revenues.

Ms. Huynh Thi Phuc, Delegate of Ba Ria Vung Tau Provincial People’s Council.

Therefore, it is necessary to carefully assess the impact before deciding on the timeline for implementation and to build a reasonable adjustment roadmap to ensure sufficient regulation of consumption without negatively affecting businesses and workers. “The special consumption tax rate needs to be determined reasonably to ensure efficient and sustainable state budget revenue without putting pressure on the macro-factors of the economy,” said Ms. Phuc.

Mr. Pham Van Hoa, a delegate from Dong Thap Province, pointed out that alcohol and beer are among the top ten industries in terms of tax revenue. Therefore, following the government’s proposed roadmap will likely “strangle” these two industries. Meanwhile, the delegate expressed concern about the rampant influx of smuggled foreign alcohol and beer into Vietnam, which has not been effectively controlled. If the special tax rate is increased for domestic businesses, the smuggled products will benefit significantly.

“I agree with increasing the tax on alcohol and beer, but we need to provide a roadmap to give the companies time to prepare. A sudden hike in taxes will affect their production,” Mr. Hoa proposed.

PROPOSAL TO TAX BEER LOWER THAN LIQUOR BELOW 20 DEGREES

Mr. Hoang Van Cuong, a delegate from Hanoi, stated that the Law on Special Consumption Tax (amended) aims to modify consumer behavior, discouraging the consumption of luxury goods or limiting products harmful to personal health, the environment, and community society.

Therefore, when we enact the Law on Special Consumption Tax, its impact should be to change behavior. Otherwise, the law will not be effective. With this principle in mind, Mr. Cuong observed that some proposals in the draft law are still unreasonable.

First, tobacco, alcohol, and beer are harmful to health. Mr. Cuong agreed that special consumption tax should be increased on these products but suggested considering how to modify consumer behavior. He disagreed with the small annual increases as they do not change behavior. Instead, he proposed a significant initial increase of around 10-15%, followed by a second increase after five years, along with enhanced communication and education for consumers and businesses to have time to transition to producing other products.

Mr. Hoang Van Cuong, Delegate of Hanoi People’s Council.

Second, regarding the taxation of alcohol and beer, the perspective is that these are products harmful to health and contain alcohol. Therefore, beverages with higher alcohol content should be taxed higher, and those with lower alcohol content should be taxed lower. However, according to the government’s proposal, the tax on liquor above 20 degrees is the highest, followed by liquor below 20 degrees, while beer, which has a lower alcohol content, is currently taxed at a rate comparable to strong liquor. Many people consider beer a soft drink and not an alcoholic beverage, so taxing it at this rate will directly impact the tourism and hospitality industries.

While agreeing with the roadmap to increase the special consumption tax rate on alcohol and beer to curb their abuse and protect public health and social order, Ms. Nguyen Thi Kim Anh, a delegate from Bac Ninh Province, expressed concern about the draft law’s proposal to tax beer at the same rate as liquor above 20 degrees.

If the tax rate is based on alcohol content, with the understanding that higher alcohol content has a more significant impact on health, why is the tax rate for beer higher than for liquor below 20 degrees, when most beer has an alcohol content of less than 5 degrees? The delegate requested that the drafting committee provide further explanation on this issue and consider amendments to ensure effectiveness and feasibility.

Concluding the discussion on the afternoon of November 27, Vice Chairman of the National Assembly, Mr. Nguyen Duc Hai, stated that the opinions of the delegates had been fully recorded and transcribed. The Standing Committee of the National Assembly will instruct the reviewing agency to coordinate closely with the drafting agency and related agencies, taking into account the opinions expressed in the hall and the discussions in the Groups, to finalize the draft law for submission to the National Assembly for consideration and decision-making according to the law-building program.