Vietnam considers hiking tax on alcohol and beer

Two options for tax increase

Nguyen Thuy Anh, a representative of the General Department of Taxation's Policy Department, revealed that the Ministry of Finance is weighing two options for increasing the special consumption tax (SCT) on beer and alcohol, leaning towards the higher rate.

The proposed plan suggests that by 2030, beverages with an alcohol content of 20 per cent or higher, along with beer, would be taxed at 100 per cent, while drinks with less than 20 per cent alcohol would face a 70 per cent tax.

According to the ministry's calculations, this tax hike would lead to higher retail prices, thereby reducing the production and consumption of these products. The goal is to mitigate the adverse health effects associated with excessive alcohol and beer consumption.

The tax increase is also expected to help control disease risk factors, lower morbidity and mortality rates and ease the burden on the healthcare system, ultimately reducing hospital overcrowding.

The higher tax option is anticipated to boost state revenues significantly and have an immediate impact on reducing alcohol and beer consumption from 2026 onwards.

However, this move could negatively affect the business operations of companies in the alcohol and beer industry due to decreased consumption, Thuy Anh noted during a recent seminar on tax policies for alcoholic beverages.

Balancing interests

Nguyen Thi Cuc, President of the Vietnam Tax Consultants' Association (VTCA), supports the gradual adjustment of taxes on tobacco, beer and alcohol to curb production and consumption and to fulfill international commitments. However, she cautions that a sudden and steep SCT increase might not achieve the desired outcomes.

Such an increase could lead to a rise in smuggling, with consumers turning to illicit alcohol or homemade brews, which would decrease tax revenues and compromise product quality, potentially harming users' health.

Associate Professor Nguyen Van Viet, President of the Vietnam Beer-Alcohol-Beverage Association, highlighted statistics indicating that 80 per cent of the approximately 500 million liters of alcohol produced in Vietnam are illicit, contributing to frequent methanol poisoning incidents.

Additionally, 75 per cent of the alcohol sold in the market evades taxes, resulting in a $1 billion annual loss in tax revenues. In contrast, alcoholic beverages produced by legal enterprises are subject to up to 15 different taxes and fees.

The beverage industry contributes around VND 60 trillion ($2.6 billion) to the state budget annually and provides direct employment at factories and indirect jobs through supply chains, services, and supporting industries for millions of workers.

"Since 2020, the beverage industry has faced significant challenges due to various impacts, with a sharp decline in consumption, empty beer restaurants, job losses, and reduced revenue, profit, and budget contributions," Viet said.

He stressed that given the current difficulties, policymakers need to carefully consider the increase and its implementation timeline to ensure it is balanced, safeguarding public health while avoiding a shock to businesses.

"A policy should remain stable for at least 10 years to allow enterprises to plan their production investments, adapt, and recover economically, continuing to make significant contributions to the country's socio-economic development," Viet suggested.