Brian Jeffrey
There’s a proposal to raise the Special Consumption Tax (SCT) on beer from 65% to 80% by 2026, with plans to increase it annually by 5%, aiming for a total of 100% by 2030. This has raised alarms about potential negative economic effects.
The current discussions in the 8th session of the 15th National Assembly include a draft amendment regarding the SCT on beer, which presents three tax increase options.
Options for Beer Tax Increases:
1. Option 1: (Proposed by the Ministry of Finance) Increase the tax to 70% in 2026, then raise it by 5% annually to reach 90% by 2030.
2. Option 2: (Proposed by the Ministry of Finance) Set the tax at 80% in 2026, increasing it by 5% each subsequent year until it reaches 100% in 2030.
3. Option 3: (Proposed by the Beer, Alcohol, and Beverage Association) Begin tax hikes in 2027 with a 5% increase every two years, culminating in 80% by 2031.
During a workshop on the economic effects of the SCT, Dr. Nguyen Minh Thao from CIEM voiced concerns regarding the Ministry of Finance’s support for Option 2, indicating that such a progressive tax hike is uncommon globally.
Dr. Thao criticized the Ministry’s impact analysis for lacking depth and being based more on opinion than solid evidence. Crucially, the tax’s implications for 21 interconnected sectors have not been thoroughly explored.
CIEM shared important insights to aid decision-makers in evaluating the proposals:
1. Effects on the Beer Sector:
– Option 1: 8% decrease in value by 2026, totaling over VND 44 trillion in losses from 2026 to 2030.
– Option 2: A more drastic 11% drop in 2026, with cumulative losses surpassing VND 61 trillion.
– Option 3: Projected 7.2% drop starting in 2027, leading to VND 38 trillion in losses by 2031.
2. Impacts on National GDP:
– Option 1: Potential GDP reduction of over VND 14 trillion (0.035%).
– Option 2: A larger GDP decline of VND 32.3 trillion (0.08%).
– Option 3: Lesser GDP impact of VND 8.59 trillion (0.017%).
3. Effects on Labor Income:
– Option 1: Labor income could drop by over VND 3.4 trillion.
– Option 2: A more significant reduction of VND 4.6 trillion.
– Option 3: Minimal impact at VND 2.2 trillion.
4. State Budget Revenue Impacts:
– Option 1: Projected indirect tax revenues would increase by VND 6.469 trillion from 2026-2030, despite a decline in corporate taxes by VND 1.230 trillion, resulting in a net gain of VND 5.149 trillion.
– Option 2: A higher net gain of VND 6.807 trillion expected due to rising indirect taxes (VND 8.559 trillion), countered by a corporate tax decrease of VND 1.752 trillion.
– Option 3: Expectation of a net gain of VND 3.330 trillion from 2027 to 2031.
However, these expected gains might be short-lived as a downturn in the beer sector’s revenue would likely reduce contributions from associated industries.
Nguyen Thanh Phuc, External Relations Director at Heineken Vietnam, criticized the proposed 100% SCT rise, calling it a detrimental policy with vast implications for both large firms and small-to-medium enterprises in the alcohol supply chain.
He stated that higher taxes would deter investment, especially foreign investments, as businesses struggle with escalating costs and new environmental compliance. The cascading effects could lead to layoffs, decreased participation from SMEs, and slowed GDP growth, creating social welfare issues like rising unemployment due to business closures.
Dr. Thao highlighted the need for caution in implementing tax hikes, given their potential to hinder economic growth. A projected GDP drop of 0.08%, as suggested by Option 2, could violate the National Assembly’s economic objectives.
Dinh Thi Quynh Van, Chairperson of PwC Vietnam, concurred on the necessity for tax increases but advocated for a balanced strategy that harmonizes state revenue needs with the concerns of businesses and industries.
