Special consumption tax on alcoholic beverages: Which method is optimal?

On January 18, the Central Institute for Economic Management (Ciem) and the Vietnam Tax Consulting Association organized a workshop “Current status of tax policy on alcoholic beverage products and reform trends”.

MOST APPLY A MIXED TAX METHOD TO ALCOHOL BEVERAGES

Sharing international experience in applying special consumption tax, Ms. Dinh Thi Quynh Van, General Director of PwC Vietnam, said there are two main goals of special consumption tax.

The first goal is the Special Consumption Tax, which is often levied on a number of groups of goods and services that the Government does not encourage consumption for reasons such as health, environment, culture, social impact, etc. The second goal is to increase budget revenue. Tax policy is designed to balance goals and minimize other side effects such as tax avoidance behavior, smuggled goods, counterfeit goods, poor quality goods, industry development…

Currently, countries around the world are applying 3 tax calculation methods, including: (first) tax structure based on percentage (tax rate is determined by percentage of taxable price, which is factory price or retail price); (2) absolute tax structure (fixed tax rate per unit of goods) and (3) mixed tax structure (combination of percentage tax and absolute tax).

With alcoholic beverages, PwC General Director informed that the current international practice is to classify and tax products according to alcohol content.

Accordingly, the main products on the market are actually classified into 3 main groups.

Group 1: distilled alcohol (brandy, whiskey, gin, vodka, rum…).

Group 2: wine, liqueur.

Group 3: beer, fermented apple juice and some other fermented drinks.

“Classifying and taxing products according to alcohol content helps determine the appropriate tax system and tax rate for each product group; can limit manufacturers from developing their own products and production processes to optimize applicable tax rates,” Ms. Dinh Thi Quynh Van said.

In the Report on special consumption tax for alcoholic beverages published on December 5, 2023, WHO recognized that the absolute tax system is the most optimal because it shows the correlation between the alcohol level in the product and the tax amount. must turn in.

According to Ms. Van, in the world, the absolute tax system is most commonly applied to alcoholic beverages.

The European Union (EU) requires member states to comply and ensure that their domestic laws tax alcoholic beverages according to an absolute tax system.

Special consumption tax on alcoholic beverages: Which method is optimal?  - Photo 1

Special consumption tax on alcoholic beverages: Which method is optimal?  - Photo 2


In the Asean region, where countries have an economic scale similar to Vietnam, 6/10 countries have switched to applying the mixed/absolute tax method for alcoholic beverages. In particular, Singapore, Philippines, Indonesia and Brunei currently also apply an absolute tax system for alcoholic beverages. Thailand and Malaysia have switched to mixed tax systems.

Trend of shifting special consumption tax structure in the Southeast Region.
Trend of shifting special consumption tax structure in Southeast Asia.

The current WHO and international methodology when applying a mixed/absolute tax regime is to ensure that products with equivalent health effects (equivalent alcohol content) will be subject to tax rates. The special consumption tax rate is the same.

THREE RECOMMENDATIONS WHEN REFORMING SPECIAL CONSUMPTION TAX POLICY

From world experience, Ms. Dinh Thi Quynh Van made 3 recommendations for reforming special consumption tax policy on alcoholic beverages.

The first, clearly define the long-term goals and strategies of special consumption tax for each product group to build an appropriate tax model and reform roadmap. Different models can be applied to the 3 groups of alcoholic beverages due to the specificity of each group.

Monday, Switching from a relative to an absolute tax structure immediately will be complicated and disruptive. Therefore, it is recommended to gradually move from relative to mixed before moving to an absolute tax system.

Tuesday, It is necessary to build a tax reform roadmap that is clear and transparent and gradually moves in the direction of the desired tax system – for example, gradually increasing the absolute component and gradually decreasing the relative component.

Agreeing with Ms. Van, Mr. Nguyen Thanh Phuc, Director of External Relations of Heineken Vietnam, said that changing the special consumption tax system from relative to mixed percentage may have some impacts. to the current beer consumption market.

“However, we believe that if built properly, with reference to international experience and suitable for the Vietnamese market, the mixed tax system will have clear advantages in implementation. The Party and State’s goal is to reduce the harmful effects of alcoholic beverage consumption, while still ensuring sustainable budget revenue and encouraging the development of the beer industry,” Mr. Phuc said.

Each tax system has its own and different impacts on the consumer market and businesses in the alcoholic beverage industry. Each tax system has its own advantages and disadvantages, no tax system is absolutely optimal.

With a relative tax system, tax costs are calculated based on the selling price of the product, regardless of alcohol content – the main factor affecting health that the Government and related agencies are hoping to reduce consumption of. . At that time, beer products with high prices, but low concentrations, have less impact on health than beer products with low prices and high alcohol concentrations and are subject to higher special consumption taxes. Thus, it is clear that the relative tax system is creating inequity in tax costs between products with the same alcohol concentration level.

“With the mixed system, the absolute tax component does cause a difference in the ratio of tax costs to revenue between products, but this difference is not large because products with large consumption are currently being used. have similar prices. If the proportion of the relative and absolute components is built properly and has a clear roadmap, the mixed tax system can balance the disadvantages of both relative tax systems. and absolutely”, Mr. Nguyen Thanh Phuc analyzed.

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