Implementing Selective Checkout Tax (SCT) on beer and alcohol goods requires a unified strategy
Humpin' the SCT: Vietnam's Brew Brawl over Booze Taxes
The Vietnamese government plans to toss another monkey wrench into the country's beer industry with the proposed amendment to the Special Consumption Tax (SCT) Law. Here's the skinny on what's shaking up the sector and who's getting sloshed:
The Sobering Proposal
Vietnam's government has put forth two game-changing proposals to amp up the SCT:
Option one is a slow-and-steady tactic, with a gradual 5% annual increase for alcohol under 20° from 2026 up to 60%. For stronger brews and beer over the same threshold, the tax rate shoots from 65% to a staggering 90% over the same period.
Option two, however, packs a bigger punch, cranking up the starting tax rates to 50% for light liquor and 80% for heavy hitters. These escalate yearly, culminating in a whopping 100% tax for all categories by 2030.
Policymakers and industry whizzes concur that a SCT hike is long overdue (the government's been toeing this line for some time now). But the matter doesn't stop at public health; it's about toeing the line between key players: the state, suds slingers, and the public.
Hitting the Skids
Over the past few years, Vietnam's frothy brew industry has been taking one hit after another: COVID-19, economic fluctuations, and restrictive policies. These knocks to the noggin have sent many beer-makers spinning, forcing them to slash their workforce, tone down production, or shutter shop altogether.
Since 2013, the beer biz has been raking in stellar growth rates, averaging 9.76%. But the increased taxes have brought this surge to a screeching halt, dropping the average growth rate to a meager 6.85%. And if things keep up, by 2024, the growth rate will be a dismal 3.3%. Talk about a sobering trend!
If the government doubles down on the tax pressure, the repercussions could be devastating. The beer industry doesn't exist in a vacuum – it's entwined with other sectors like agriculture, transportation, services, tourism, and food and beverage distribution. A sudden and severe tax hike could send dominoes tumbling, throwing the livelihoods of millions into the fray.
Pouring Misery, or Pouring Cash?
The beer biz pours roughly VNĐ60 trillion into the government's coffers each year, accounting for almost 3% of the total budget revenue. But beyond fiscal contributions, the industry generates juicy opportunities: jobs, economic growth, social security, and an attractive source of foreign direct investment (FDI).
However, if the new SCT rates prove too much for producers to bear, they could bail on Vietnam, seeking friendlier climates in Thailand, Indonesia, or India. This shift would not only stifle domestic employment but also ding Vietnam's reputation as an investment haven.
A recent impact study cautions that an excessively harsh SCT increase could leave the beer and alcohol industries reeling, potentially torpedoing key economic indicators like GDP, state revenue, employment, and workers' income. The resulting domino effect could hamstring Vietnam's ambitions for high growth rates in the years ahead.
A Sober Path Forward
A measured, harmonious approach could keep everyone cheek to cheek. Rather than going nuclear with a 15% tax spike in 2026, the government should consider pushing the date back to 2028 and opting for a less seismic 5% annual increase, maxing out at 90%.
Võ Trí Thành
This gradual, gradual route would provide producers with breathing room to adjust and ensure steady growth in state revenue while dodging sudden market upheavals and maintaining Vietnam's allure as an investment destination.
The government must also shore up its market management by clamping down on the overabundance of illicit brew hooch circulating in Vietnam – homemade, smuggled, and counterfeit varieties that pose significant health risks. Otherwise, the intended health-promoting goals of the SCT could go up in smoke.
In the long haul, the government might consider tweaking the tax system to balance the benefits and drawbacks of the current relative and absolute tax structures.
For now, the party's on hold as Vietnam's policymakers weigh their options and get their drink on to find a harmonious solution for all.
Võ Trí Thành is a former vice-president at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. With a doctorate in economics from the Australian National University, he's a whiz on macroeconomic policy, trade liberalization, and institutional reform. When he's not crunching numbers, you can catch him sipping a cold one and penning the Việt Nam News column Analyst's Pick.
Enrichment Data:
*The proposed SCT increase plans to target the beer industry, aiming to control harmful consumption.
*There are two proposed options for increasing the SCT, with each offering different tax rates and schedules for various alcohol categories.
*An excessively harsh SCT increase could negatively impact the beer industry, causing reduced production, job losses, and decreased state revenue.
*Key economic indicators could suffer if the beer and alcohol industry experiences substantial losses.
*Global and domestic challenges, such as the COVID-19 pandemic and restrictive policies, have already taken a toll on the beer industry.
*The state seeks to balance public health objectives with economic stability in making its decision on the SCT hike.
*The beer industry contributes significantly to Vietnam's economy, providing employment, revenue, and investment opportunities.
*A sudden and severe SCT hike could prompt beer makers to seek greener pastures in neighboring countries, affecting state revenue and job prospects.
*Experts suggest a harmonious approach to the SCT increase, with a focus on aligning the interests of the state, businesses, and consumers.
*The government should temper the SCT increase to provide producers with time to adjust and avoid disrupting the market.
A woman shops for beer at a supermarket in Hà Nội. - Photo kinhtedothi.vn
*In addition to the SCT increase, the government should address the proliferation of illicit alcohol to ensure successful health-promoting goals.
*The government may consider implementing a hybrid tax system in the future to balance the disadvantages of the current relative and absolute tax structures.
- The former vice-president at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council, Võ Trí Thành, suggests a gradual SCT increase for a harmonious solution.
- Beyond fiscal contributions, the beer industry generates jobs, economic growth, social security, and foreign direct investment.
- If the SCT hike is too severe, it could force beer makers to seek friendlier environments in countries like Thailand, Indonesia, or India.
- The recent COVID-19 pandemic, economic fluctuations, and restrictive policies have already caused many beer-makers to slash their workforce, reduce production, or shutter shop.
- The proposed SCT increase aims to control harmful consumption and improve public health, but a sudden and severe hike could have disastrous economic consequences.
- The proposed two options for SCT amendments involve different tax rates and schedules for various alcohol categories, with option one offering a gradual 5% annual increase and option two starting at 50% and 80% for light and heavy brews, respectively.
- If the new SCT rates prove too much for producers to bear, Vietnam's economic indicators like GDP, state revenue, employment, and workers' income could suffer.
- The beer industry pours roughly VNĐ60 trillion into the government's coffers each year, accounting for almost 3% of the total budget revenue.
- With a doctorate in economics from the Australian National University, Võ Trí Thành is an expert on macroeconomic policy, trade liberalization, and institutional reform.
- The government should also address the overabundance of illicit brew hooch circulating in Vietnam to ensure successful health-promoting goals of the SCT.
- A measured, harmonious approach could provide producers with breathing room to adjust, ensuring steady growth in state revenue while dodging sudden market upheavals and maintaining Vietnam's allure as an investment destination.
- The government must consider implementing a hybrid tax system in the future to balance the disadvantages of the current relative and absolute tax structures, enriching the tax system in the long run.
