The National Assembly is discussing the proposal of the Ministry of Finance on adjusted special consumption taxes (SCT) on alcohol, beer and tobacco. If it is approved, spirits will face the maximum hike of 15 percent since July 1 next year.
Stephane Gripon, Co-Chairman of the Wine & Spirits Sector Committee of the European Chamber of Commerce (EuroCham) in Vietnam, shared with us about the issue.
What are your comments on the issue if it is approved?
Stephane Gripon, Co-Chairman of the Wine & Spirits Sector Committee of the European Chamber of Commerce (EuroCham) in Vietnam.
We understand the government’s rationale is to protect consumer health, reduce consumption, and increase state budget. However, I think the proposed policy should be done equally for all beverage alcohol – beer, wines and spirits – over the same period. The proposed phasing approach unnecessarily discriminates against wines and spirits, which face an upfront hike of 15 percent in the first year, versus phased increments of 5 percent per year on beer.
The proposed change is substantive and could have significant impact on legitimate businesses if not implemented in a reasonable way. A significant increase in taxes will only penalize consumers who choose to drink alcohol responsibly, while driving consumers to the black market of dangerous, illicit alcohol. What we want to say is the new regulation shouldn't create any discrimination against our industry vis-a-vis local or imported spirits.
How do you think this will affect liquor and beer companies and investment inflows into Vietnam and the country’s investment environment?
Together, wines and spirits are the EU’s biggest agricultural export and Vietnam is a priority market for the European industry. In 2013, total EU exports of wines and spirits was 18 billion Euros and represent 61 percent of the EU’s total food exports.
Coming at a time when Vietnam is negotiating a Free Trade Agreement with the EU, we consider that this proposal sends an unwelcome signal.
Moreover it has the potential substantially to undermine the FTA as it would negate any tariff reductions that might be negotiated. A sudden increase is also not good for Vietnamese consumers.
Usually, when SCT is increased, it is to increase budget revenues. But, this gives advantage to the development of smuggling and illicit trade, which is non-tax-paid. There is, of course, already widespread smuggling and illicit liquor and such a tax shock will make this worse. This only puts consumers at risk from a health and quality perspective, at a time when consumer safety is a key priority for many countries around the world.
The home-made/ illicit liquor segment also deprives the government of much needed tax revenues, and risks undermining Vietnam’s crucial tourism industry and broader international reputation.
Do you think the government can come up with a more business-friendly roadmap for the tax hikes while still preventing smuggling?
Roadmap for spirits is still under debate. We expect a step-by-step increase, maybe every 5 percent a year from January 2016 as a sudden of 15 percent increase from July 2015 will create a shock for enterprises.
Moreover, the roadmap will allow enterprises to work together with the authorities to improve control over the market because you cannot change control over the market overnight. So the more you pay tax, the more you expect better service and better effectiveness of the state. Tax increase should be combined with fighting illicit importation and illicit trade. What is important for the roadmap is not to discriminate one sector versus the other. It has to be harmonized and consistent and balanced.
The simplest structure is one based on alcohol content, known as specific taxes. This is used by many developed countries around the world and is recognized by the WHO as an appropriate tax structure to help reduce alcohol related harm. A transition road-map towards such a structure may be worth considering and enterprises believe it would support the objectives of the National Alcohol Policy here in Vietnam.
If the draft is approved without any changes, what should the government do to cushion companies from the shock of rising SCT rates?
Eurocham has written a letter to explain our position to different ministries and government offices to express our concern about SCT. We believe the changes will be substantial and have a significant impact on legitimate business. We believe what we are arguing is not about the tax itself, but it is about the implementation of the roadmap, which should be reasonable and respectful of fair treatment across categories and not discriminate against spirits.
Of course, we strongly support an alcohol tax framework that is simple, transparent, and efficient, and that strikes a balance between government, industry, and consumer objectives. Again, this could be in the form of a specific tax structure based on alcohol content.
Any plan on tax increases must be carefully considered. Comparisons of product categories must be made to ensure the application of neutral tax adjustments. To avoid tax shock, policy makers must determine an appropriate roadmap. A gradual, multi-year approach across products when increasing SCT should be applied. It’s good for all parties, providing industry and consumers with the ability to plan and adjust as necessary.