Since 2022, Vietnam’s government has debated whether to increase the special consumption tax that applies to harmful products such as alcohol, cigarettes and soft drinks.
Doing so, some think, would hit two birds with one stone: increase state revenue and make alcoholic products more expensive, thereby discouraging consumption by people with drinking problems.
Vietnam’s public debt is falling — down to around 44% of GDP last year, according to official records — but the government needs to recalibrate its revenue collection practices.
Free-trade deals have cut tariffs, and the government is under more pressure to invest domestically. As a result, Hanoi knows it needs to rely, more than ever, on domestic sources of revenue. State takings from export-import activities were down 19.4% in the first two months of this year, compared to the same period in 2022, the General Department of Vietnam Customs reports.
Tax receipts overall were up 16.7%, and domestic taxation accounted for 96% of the total revenues, according to media reports that cited the General Department of Taxation.
In 2019, the average beer consumption per person in Vietnam was 47.6 liters (12.4 gallons), the third-highest in Asia after China and Japan. A study published in 2019 in the Lancet medical journal reckoned the per capita liquor consumption in Vietnam increased 90% between 2010 and 2017, the fifth highest in the world. It’s expected to continue growing this decade.
Beer is booming, but at what cost to health?
That’s good news for business. The beer sector in Vietnam was estimated to be worth $26 billion in 2021, the highest in Southeast Asia, according to a recent report by Nikkei Asia. However, a study in 2016 estimated that 12% of all deaths in Vietnam are associated with alcohol use, while a fifth of deaths due to road crashes were caused by alcohol use.
A new alcohol-control law came into effect in 2020, which included new restrictions on advertising and on the sale of alcoholic substances to minors, as well banning driving with any concentration of alcohol in the blood.
According to the World Health Organization, during debates about the law “the alcohol industry … was lobbying hard to nullify or weaken it.”
In February, Vietnam’s Finance Ministry said it was listening to all opinions about revisions to the Law on Special Consumption Tax. Again, the alcohol industry reckoned higher taxation wasn’t the way forward.
Since 2003, the Law on Special Consumption Tax has been amended five times and each change has “destabilized” the legal, institutional and business environment, said Chu Thi Van Anh, general secretary of the Vietnam Beverage Association, an industry group.
Additionally, she said, increasing such taxes so far has yet to achieve the goal of reducing consumption and protecting health, a claim that official data appear to support.
One main problem is that a special consumption tax has no impact on illegal alcohol production, which accounts for between 60% and 70% of the market, Van Anh reckons.
She estimates that this illegal sector costs legitimate businesses around $750 million (€690 million) each year, hurting not just their own profits but also the government’s coffers.
Dutch-based Heineken is one of the largest players in Vietnam’s market, which is otherwise dominated by Thai and Japanese brands, as well as Vietnam’s own brews.
Heineken Vietnam’s head of communications declined to comment because, the company said, the Vietnam Beverage Association is leading the discussion and media engagement on behalf of all businesses in the alcohol industry.
But Heineken has also been doing its own senior-level lobbying. During Vietnamese Prime Minister Pham Minh Chinh’s official visit to the Netherlands last December, he met with the CEO of Heineken, Dolf van den Brink, at the firm’s global headquarters in Amsterdam.
Around this time, the brewer announced plans to invest an additional $500 million in Vietnam, on top of the around $1 billion in Vietnam it has invested to date.
After meeting the company’s CEO, Chinh said Hanoi aimed to improve its tax policy in the spirit of “harmonious benefits, shared risks,” according to a government statement.
Last September, Heineken Vietnam unveiled its largest brewery in Vietnam, an event attended by then Deputy Prime Minister Vu Duc Dam. However, it was ordered to pay $39.7 million in back taxes and fines in 2020.
The Netherlands is now the largest EU investor in Vietnam, with registered capital of about $13.7 billion, according to government data. Gabor Fluit, director of De Heus Asia, part of a Dutch animal feed conglomerate, was elected chairman of the European Chamber of Commerce in Vietnam this month.
Big Alcohol digs in
The alcohol lobby argues that any increase in a special tax will negatively affect the market, especially during its recovery efforts from the pandemic. If alcohol firms put the extra cost onto consumers, that would also impact the hospitality and tourism sectors, which were decimated by the pandemic and are only now showing signs of recovery.
The Vietnam Beverage Association wants the government to delay any increase in the special consumption tax until at least 2024, and even then it will lobby for only a slight uptick in rates.
Van Anh, the industry body’s general secretary, points out that production costs have climbed massively because of the war in Ukraine, as Ukraine and Russia are two of the world’s largest exporters of grain. Global inflation is also harming the industry.
Much depends on by how much the tax rate would be hiked. The special consumption tax on alcohol was last increased in 2018, when it rose from 50% to 65%, yet that doesn’t appear to have had too much of an impact, said Pritesh Samuel and Thang Vu of consultancy firm Dezan Shira & Associates.
“While the 2018 tax increase may have resulted in short term disruption, Vietnam’s alcohol industry remains vibrant,” the firm noted. “Tobacco and alcohol prices in Vietnam remain among the lowest globally. Therefore we will have to wait and watch and see how much of an increase the government plans to implement.”
Some health experts say only a major increase in the special tax would impact the worst of the health costs associated with drinking.
The World Health Organization estimates that a special tax only accounts for about one-third of the retail price of alcoholic products in Vietnam, whereas it’s usually in excess of half, if not as high as 85%, in many other countries.
All this is a headache for a government that reckons that progress and social justice should not be sacrificed for “simple economic growth,” as Prime Minister Chinh said this week while welcoming the largest-ever American business delegation to Hanoi.
Source : DW