Vietnam eyes hike in tax on alcohol, tobacco

TN News

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 People shop for beer at a supermarket / PHOTO COURTESY OF TUOI TRE

The Ministry of Finance has recommended an increase in excise tax on alcohol and tobacco by 15-20 percentage points as part of the government's efforts to reduce consumption.

Under the proposal, which will take effect on July 1 next year if approved, the tax on beer and liquor will go up from 50 now to 65 percent, Tuoi Tre (Youth) newspaper reported.

The rate on tobacco will increase from 65 now to 75 percent in July next year and to 85 percent in 2018.

The hikes will bring the government additional revenues of VND7.8 trillion (US$369.75 million) from beer, VND389 billion ($18.44 million) from wine, and VND2.93 trillion ($112.5 million) from tobacco in 2016, and increase further in the two following years.

The ministry has also recommended imposing excise tax of 10 percent on carbonated soft drinks.

It quoted health experts as warning that they pose risks like obesity and diabetes if consumed every day or excessively.

Neighboring countries like Cambodia, Thailand, and Laos have already imposed taxes of 10-20 percent on the drinks, it said.

Official figures show that last year Vietnamese consumed 925 million liters of soft drinks, which were priced at VND11,987 (56 cents) per liter on average.

This means businesses would pay around VND1,200 per liter in consumption tax, which would not greatly affect them, it said.

If the proposal is approved, it would fetch the government some VND1.5 trillion ($71.1 million) in 2016.

Vietnamese also consumed three billion liters of beer last year, or 32 liters per capita, making the country the top consumer in Southeast Asia.

It ranked third in Asia (after China and Japan) and 28th in the world.

Excessive consumption of alcohol harms human health and causes many social problems like violence, crimes, and traffic accidents, the ministry said.

There are 15 million smokers in Vietnam, or more than 16.6 percent of the country’s population, which is a “quite high" rate, the ministry said. Not to mention the millions of women and children who inhale second-hand smoke at home and the workplace.

Smoking killed 40,000 people in Vietnam in 2008, and the death toll is expected to increase to 50,000 by 2023.

Speaking to Tuoi Tre, Phan Dang Tuat, chairman of Saigon Beer Company (Sabeco), said local businesses would “of course” have to pay more tax if the ministry’s proposal is approved.

But the timing could be “inconvenient” for businesses, especially since they face “harsh competition,” he said.

Besides, once the consumption tax is increased, the dividends Sabeco pays shareholders would reduce, making it less attractive to investors, especially at a time when it is preparing for an initial public offering (IPO), he said.

Last year Sabeco paid over VND7 trillion ($331.8 million) in tax, and expects to pay more than VND9 trillion if the new rate is applied, he said.

Tran Son Chau, director general of the Vietnam National Tobacco Corporation (Vinataba), said the price hike would only be effective in reducing consumption if the government can curb the smuggling in of tobacco.

Studies show that more than one billion packs of cigarettes are smuggled into Vietnam every year, causing a loss of VND4-6 trillion in taxes.

Asked if the tax hike would lead to a rise in tobacco prices, Chau said it would be “very difficult” to raise prices because the average income in Vietnam remains lower than in other countries in the region.

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