At a conference on tax changes to encourage business activities hosted by VIR last week, Chu Thi Van Anh, vice president and secretary general of Vietnam Beer-Alcohol-Beverage Association (VBA), said the draft amendment to the Special Consumption Tax (SCT) law, if passed, could bring the highest tax increase in the industry’s history.

Companies and legislators understand the importance of choosing the optimal path for taxation

The draft proposes two options for increasing alcohol tax (see graphic). Vietnam currently charges an SCT rate of 35-65 percent for alcohol, and 65 percent for beer. According to the plan, the tax rate for beer will rise to 80 percent from 2026 and to 100 percent by 2030.

“The impact of these proposals cannot yet be fully assessed, but there are many concerns. The Ministry of Finance bases its proposals on the recommendations of the World Health Organization (WHO), which are aimed at countries with different objectives, economic conditions and cultures and are not specific to Vietnam. The Ministry of Finance has assessed the impacts, but they are qualitatively and quantitatively inadequate,” Van Anh said.

According to the WHO, alcohol tax in Vietnam is only about 30 percent of the retail price, while in many other countries it is between 40 and 85 percent. This is one of the reasons why the WHO recommends that Vietnam should increase alcohol tax by at least 10 percent to reduce consumption and thus curb the harmful effects of alcoholic beverages.

The VBA complained that, firstly, every price increase per litre was not assessed in terms of the impact on workers in the alcohol industry ecosystem.

“Secondly, what will happen to consumers’ health if the tax is increased? There may be a big gap between official and unofficial goods,” Anh said. “If taxes and prices of official products increase, consumers will switch to using more unofficial goods, which brings potential risks to consumers’ health.”

Bui Ngoc Tuan, Tax and Legal Partner at Deloitte Vietnam, said: “We fundamentally support the Drafting Committee’s decision to increase the SCT on goods that have negative impacts on health and the environment in Vietnam. However, the implementation of this policy also needs to be carefully considered from a socio-economic perspective, especially taking into account feedback from companies in the industry.”

According to Tuan, while raising consumption tax can lead to higher budget revenues, if it increases too quickly, it can have undesirable consequences. Tax increases can reduce the production capacity of enterprises, which can lead to wastage of production lines and financed equipment, as well as increase unemployment due to staff cuts.

“According to the Laffer Curve principle and the theory of the relationship between tax rates and government tax revenue, raising taxes too much beyond the limit will reduce the government’s overall budget revenue,” Tuan explained.

Le Tuan Anh, director of the Department of Industrial and Service Economics at the Ministry of Planning and Investment, said at the conference last week that while the tourism industry is recovering, there are still many difficulties in some areas of the service industry, such as the beverage industry.

According to a report from the VBA, consumption and production have not met expectations, and some companies have even accumulated losses for several quarters, indicating that the overall picture of the beverage industry still has many problems that need to be solved.

“From the perspective of a state administrative agency, we believe the plan proposed by the Ministry of Finance to introduce the SCT makes sense. However, to achieve the original goal, we need to pay more attention to the factors of revenue increase, behavior change and fairness,” said Tuan Anh. “We need to choose the right time, the right level of increase and expansion to ensure sustainable development of the service industry as well as the entire Vietnamese economy.”

The Ministry of Finance noted that the main approaches to collecting consumption taxes on goods and services worldwide are ad valorem tax, specific tax and compound tax.

“However, through research and feedback from the business community and experts, it has become clear that the calculation method for the total tax or the specific tax on wine and beer is not suitable for the current conditions in Vietnam,” the Ministry of Finance said.

The ministry explained that the domestic beer market currently has a special feature: up to 80 percent of the market share consists of popular and local beer, with a significant price difference compared to premium beer.

The application of mixed tax and absolute tax therefore leads to unfair taxation, as popular beer companies have to pay more taxes. Revenues decrease and this indirectly affects social security and especially jobs in the sector.

In 2023, the industry contributed about $2.5 billion, or about 3.4 percent, to state budget revenues.

Phan Duc Hieu, permanent member of the Economic Affairs Committee of the National Assembly Tax increases are necessary, but the problem is calculating taxes appropriately. First, the tax roadmap must be taken into account. It is impossible to have two options as proposed, but there must be another tax roadmap in addition. The roadmap must provide a gap of 2-3 years before taxes start to be collected so that companies have enough time to adapt. In my opinion, taxes should be introduced from 2027. In addition, the highest tax rate must be clearly defined by 2030. If the tax rate is too high, it will lead to a decrease in corporate revenues, which in turn will affect tax collection. In addition, there must be a convincing basis for setting the highest tax rate. The tax rate on beer must be different from that on other alcoholic products. In addition, we should review the import tax rate on imported alcohol. If there is currently a tax exemption for products with an alcohol content below 20 proof, we need to review this to bring equality for domestic products. Finally, if tax increases are not enough, we must consider other measures – for example, strengthening the fight against economic fraud or controlling the production of artisanal alcohol to ensure food hygiene. Hoang Van Cuong, Member of the Finance and Budget Committee of the National Assembly The aim of this policy is to generate budget revenue. However, every tax also has other objectives. The aim of the SCT is to regulate consumer behaviour. If the SCT is intended to regulate consumer behaviour in relation to products that are not essential, unpopular or unnecessary, then it needs to be adjusted and resources should be allocated to other developments; or if it is intended to regulate consumer behaviour in relation to products that are not good for health, harmful to the environment and society, then it will help reduce costs for society and consumers. To determine whether the new tax policy contributes to regulating consumer behaviour and to what extent it changes it, a careful qualitative and quantitative assessment is needed. It makes sense to extend the timetable to 2-3 years before increasing taxes, both to reduce the burden on companies and to create a pause so that consumers become aware that this is a product that is not good for health. On the other hand, higher taxes could lead consumers to change their habits towards unofficial products and switch from consuming in restaurants to consuming at home. This change must be carefully considered.