Proposing a new way to calculate the excise tax rate

Sugary soft drinks are included in the excise tax. Illustration: T. Hien

According to the draft, the Ministry of Finance proposes to amend 5 main contents of the SCT Law, including expanding the tax base, bringing into the taxable category of goods and services such as sugary soft drinks and barley drinks, non-alcoholic soft drinks, new tobacco products, online video game service business; supplementing regulations on tax bases and tax calculation methods; regulations on the Tariff, the (additional) excise tax rate, including the adjustment of excise tax rates for tobacco, alcohol, and beer; specific description of taxable items in the SCT Schedule; stipulating the content of a number of laws, ensuring the consistency between the SCT Law and relevant specialized laws.

Information about the change in tax rate calculation in the draft revised SCT Law, Ms. Pham Minh Thuy, Legal Department, Vietnam Confederation of Commerce and Industry (VCCI) said, the current SCT Law applies only the percentage method, while the draft SCT Law amends and supplements the absolute tax calculation method (the amount of excise tax payable is equal to the number of taxable goods and services multiplied by the absolute tax rate) and mixed tax calculation method (SCT payable according to the percentage tax method and the absolute tax calculation method); at the same time apply mixed tax, supplement absolute tax on tobacco products.

According to the report of the Ministry of Finance, in the Law project, the Ministry of Finance will study and supplement the application of absolute tax, applying a combination of proportional tax rate and absolute tax rate for a number of items.

According to the World Health Organization's investigation report, about 90% of the countries (194 surveyed countries) apply excise tax on tobacco, the Ministry of Finance said. The current trend, more and more countries around the world apply mixed taxes on tobacco. The number of countries applying a mixed excise tax system increased from 48 countries in 2008 to 61 countries in 2016. Many countries have applied effective tax policies to increase prices or eliminate many low-priced tobacco products with higher - potential risks and harms to health than premium cigarettes, and at the same time hinders the access of young people - new smokers often access tobacco starting from low-priced cigarettes. The measure applied by countries is to increase the application of an absolute tax, a mixed tax with conditions on periodic tax increases at or above the rate of inflation and growth to ensure higher tobacco prices/equal to the growth rate of income, purchasing power of smokers.

Regarding this issue, at the seminar to give suggestions for the SCT Law Project just held, Ms. Huong Vu, General Director of EY Vietnam Consulting Joint Stock Company emphasized, proposing to supplement tax calculation bases. SCT according to the absolute tax method, the mixed tax method, in addition to the relatively traditional method being applied, is a highlight in the proposal to develop the draft SCT Law (amended). If the absolute tax calculation method is to levy the absolute tax rate on a taxable quantity of goods and services, the mixed tax calculation method combines both the percentage tax calculation and the absolute tax rate. Particularly, the progressive tax method is applied to the selling price and the service supply price. Therefore, the higher the product's selling price, the greater the amount of payable SCT. Ms. Huong said that each method has certain advantages and disadvantages, so depending on socio-economic goals and market characteristics of goods and services that need to be regulated in production and consumption, countries will choose to apply flexibly the appropriate excise tax calculation method. However, it should be noted that Vietnam's wine and beer market has very different characteristics compared to the world, so the choice of which tax calculation method to apply must be studied, carefully calculated, and evaluated to have the least influence on businesses but achieve policy goals.

Regarding the impact of the Law project, Ms. Pham Minh Thuy said that according to the impact assessment report of the Ministry of Finance, the implementation of the revised Law on SCT ensures the harmony of interests between the State, businesses, and consumers. For consumers and society, the price of sugary drinks, barley and non-alcoholic beverages, new cigarettes, and online video game business services will increase in proportion to the number of SCT that must be paid, thereby orienting consumption, contributing to reducing the harmful effects of sugary drinks, barley and non-alcoholic beverages, and new cigarettes, thereby improving public health. For production, the application of excise tax will increase the selling price of products, thereby reducing the number of goods consumed, but will encourage businesses to change ingredients, and product formulas, and encourage better products for consumers' health. For the state budget, the state budget revenue increases because these are newly added excise-taxable objects. Regarding negative impacts, namely economic and social impacts, the implementation of taxation on goods and services will increase selling prices, thereby reducing consumer demand for goods and services. This will affect enterprises in the domestic production and business industry. Besides, in the initial period of implementing the policy, it may increase administrative procedures for tax administration agencies and enterprises producing and trading taxable products, however, in the long term, when the policy has stabilized, there will be no impact on administrative procedures.