Proposed excise tax hike alarms liquor businesses

Hiking the excise tax on liquor to 100% by 2030 will have an adverse impact on an industry whose performance is already on the wane, insiders and analysts warn.

The rate is set to be raised to 80% in 2026 and to 100% by 2030 for liquors with an alcohol content of more than 20% and beers under a recent plan proposed by the Ministry of Finance.

The ministry said the tax is currently only around 30% of these products’ retail prices as against 40-85% in many countries.

« The current excise tax is not high enough to reduce consumption. »

It added that the tax should be at least 40% of retail price.

At a seminar held Thursday organized to gather public opinion, Nguyen Thanh Phuc, director of public & government affairs at Dutch brewer Heineken Vietnam, said businesses would suffer « very negative » impacts if the tax hike is approved.

His company saw sales decline by double digits last year for the first time in decades and recently had to shut down a factory in Quang Nam Province, he said.

« The tax increase needs to be carefully and thoroughly considered. »

He said there should be a balance between economic stability and protecting consumers’ health.

The beer industry, which accounts for 98.6% of Vietnam’s alcoholic beverage market, is dominated by Heineken, Danish brewer Carlsberg and local giants Sabeco and Habeco.

Sabeco’s revenues and profits have been falling since 2021.

Most of its 26 factories across the country are facing difficulties as costs have increased by 20-40% while prices have not.

As for Habeco, the company’s sales plunged by 30% last year from 2019, prompting it to slash its payroll by 25%.

Nguyen Minh Thao, head of business environment and competitiveness at the Central Institute for Economic Management, told VnExpress that the proposed tax plan would also affect foreign investment.

« When investors enter Vietnam, they would want to be able to foresee regulation changes. So policies must be consistent. Tax adjustments should only be done over an adequately long and flexible timeline to enable businesses to adapt. »

The Vietnam Beer – Alcohol – Beverage Association warned that higher taxes would increase beer smuggling and impact the supply chain, tourism services and agriculture.

Chu Thi Van Anh, vice president of the association, said the government should extend the timeline for the tax hike to avoid creating a shock for businesses.

Concurring with this, Phuc suggested that the tax rate on beer be maintained at the current 65% for three years and raised by 3-5 percentage points every three years after that.

He also called for having multiple tax rates based on alcohol content.

Tax expert Nguyen Van Phung said other measures to combat alcohol consumption, such as the recent crackdown on drunk driving, are more effective than tax hikes.

Citing official data he pointed out that the excise tax has been increasing in the last 10 years but liquor consumption doubled in the period, indicating that prices have little effect on consumer behavior.

But the ministry proposal also found support.

Economist Dinh Trong Thinh said the excise tax on beer is much lower in Vietnam than in other countries.

« Manufacturing businesses should restructure to meet social demands and serve the long-term benefits of future generations. »

Increasing tax on beer and liquor would help reduce their consumption in the long term, he added.

By Phuong Dung – VnExpress.net – July 12, 2024