Special Consumption Tax needs serious consideration

Former Director of the Tax Department, Former Director of the Tax Administration Department of Large Enterprises under the General Department of Taxation, and Former Deputy Director of the Tax Policy Department under the Ministry of Finance Nguyen Van Phung believes in careful consideration of tax methods associated with policy goals and ethics so as to avoid a serious negative impact on businesses.

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JOURNALIST: - Sir, the draft revised Law on SCT has many new contents affecting enterprises producing, importing, and trading goods and services. What is your opinion on this?

Mr. Nguyen Van Phung: - Regardless of the circumstances in any society or in any country, at any stage in the development process of each country or territory, taxes must be based on inherent economic situations, which is business output, the health of the economy, people's income and expenditure, and the existence and development of the entire business community.

In Vietnam, we have just experienced more than two years of the Covid-19 pandemic and have also been affected by the global economic crisis, where businesses and the economies are facing many difficulties. In this context, in addition to the goals of regulating consumption and creating and stabilizing the budget, all policies and laws on excise tax need to act as a tool to support enterprises to overcome these difficulties and recover for growth and development. Therefore, when considering and amending excise tax calculation methods, it is necessary to carefully consider and evaluate the impact, pros, and cons, to apply in accordance with the current socio-economic context and conditions.

Regarding the new tax calculation method according to the draft Law, in addition to applying the current percentage of the relative tax rate, it is proposed to supplement the absolute tax calculation method and the mixed method by applying both percentage and absolute tax rates at the same time. In this, absolute tax is added and mixed tax is applied to tobacco products and the relative tax calculation method remains unchanged, but there will be an adjustment to increase the excise tax rate according to the roadmap for alcohol and beer products.

There are some opinions in favor of the method of calculating the absolute tax and the mixed tax applied to alcohol and beer products. Because this is an advanced and easy-to-implement tax calculation method, many countries have applied it to limit  the consumption and production of items harmful to health. However, the agency in charge of drafting the Law holds the view that this tax calculation method has not been applied to alcohol and maintains the tax calculation method as a percentage because it is suitable with the reality of Vietnam in both the present and in many future development stages of the country.

From a personal point of view, on the basis of studying the principles and practices of countries with similar conditions like Vietnam, I think it is necessary to consider and evaluate the prospects of the macro-economy, market operations, the current situation, and the health of enterprises that are directly affected by changes in the excise tax policy. From there, we can consider tax calculation methods, objectives, and policy ethics, and avoid creating a negative impact on domestic Vietnamese brand manufacturers.

- Sir, what are the factors that need to be studied carefully to avoid having a serious negative impact on businesses as you mentioned?

- The Law on SCT has been revised four times, but in the process of implementation some shortcomings and limit ations have been revealed that need to be further improved. Therefore, the Ministry of Finance is collecting opinions for the draft Law to amend the inadequacies in the current regulations, ensuring transparency and ease of understanding and implementation, in line with international practices and development trends. It will also remove difficulties for production and businesses, expand the tax base, and ensure a stable budget revenue. In particular, it will protect the domestic beverage industry in competition with big brands and protect national and ethnic interests as well.

Mr. Nguyen Van Phung, Senior Expert on Taxation and Corporate Governance

Vietnam's beer and wine market has a big difference between the selling price of universal products and products in the high-popular segment. If an absolute tax is applied on the number of liters in a product, the price of the product lines in the upper-popular segment will be cheaper, while the price of the popular product line will be pushed up. If tax is collected by the absolute or mixed method, it will put great pressure on low-priced common products, affecting the production and competitiveness of Vietnamese brand alcohol producers.

Currently, up to 80 percent of the market share is in popular Vietnamese brand beer. Tax collection by the percentage method has the advantage of high price-high tax and low price-low tax. Enterprises, the State, and consumers share risks and benefits when prices change. On the contrary, the imposition of absolute tax will create a higher price level, causing a decrease in purchasing power, leading to reduced revenue, reduced production capacity, and even loss.

The ensuing impact is narrowing the scale of operations and reducing the business efficiency of the service sector, tourism, and entertainment industries, where alcohol products are used to serve the consumer needs of visitors. The next consequence is that the market share of Vietnamese brand beer production is reduced, and international brand beer products will gradually replace and dominate the market.

- Sir, in your opinion which method of tax collection is most appropriate?

- The excise tax policy is in the direction of applying a percentage, adjusting the tax rate according to the roadmap in each period in recent years, and also aims to support local brewing enterprises to restructure production and improve product quality to increase competitiveness and create jobs for workers. According to statistics, the number of employees in the beverage industry in Vietnam is about 80,000 workers. Therefore, maintaining the method of relative tax collection will be suitable with the actual conditions of Vietnam, at least in the current period and for about five to ten years to come, in order to avoid damaging the Vietnamese brand as Vietnamese enterprises are gradually rising up in the market.

Maintaining the method of calculating tax by percentage and adjusting the tax rate according to the roadmap will be suitable for the market and the health of enterprises. This is an effective plan for allocating resources, helping to stabilize revenue, while still regulating and orienting consumption, as well as helping domestic beer and wine enterprises to develop stably.

In addition to the goals of regulating consumption and creating and stabilizing the budget, policies, and laws on excise tax must act as a tool to support enterprises to overcome difficulties and recover and develop sustainably for the long term.