Vietnam should increase special consumption taxes on goods like liquorand tobacco in "reasonable" increments over several years so as todiscourage smuggling and other forms of illicit trade, experts havesaid.
Speaking to Vietnam News on the sidelines of the recent 11thAsia-Pacific Tax Forum, they said that a gradual rise would also reducethe impact on consumers.
The experts were referring to increasesto the special consumption tax on liquor, beer and tobacco that havebeen proposed in draft amendments to the Law on Special Consumption Tax.
The draft law, now under discussion, is expected to be approvedthis year and come into force on July 1, 2015. It seeks to hike the taxon tobacco from 65 percent to 70 percent on January 1, 2016, and to 75percent in 2019.
The tax on beer will be increased from 50 percent to 55 percent on July 1, 2015, to 60 percent in 2017 and 65 percent in 2018.
Thespecial consumption tax on liquor with alcohol content of above 20percent will be raised from 50 percent to 65 percent and that on liquorwith less than 20 degrees would be increased from 25 percent to 35percent.
Daniel Witt, President of the International Tax andInvestment Centre, said that gradual tax adjustments withcarefully-planned roadmaps are required to avoid creating a shock andincreasing smuggling and illicit trade.
"The Government of Vietnam's approach is in the right direction," he said.
Buthe said "The 10 percent increase is too high and should be set at just 5percent annually, the same increase proposed for beer. Again, allproducts should have the same, gradual tax increase."
Higherupfront increases could risk incentivising smuggling and shiftingconsumption to the black market as consumers would substituteconsumption to other products that had not experienced the large taxincrease, which would pose risks to Government revenue, he added.
Agreeing,Stephane Gripon, General Director of Diageo Vietnam, said: "Theproposed increases are substantive and could have significant impacts onlegitimate business if not implemented in a reasonable way.
"We are concerned that any excessive increase in tax will only lead to widespread unrecorded and untaxed alcohol."
Hesaid the hikes should not begin before 2016 and should be phased overthree or four years. More importantly, he said, this should be doneequally for all alcoholic beverages – beers, wines, spirits – over thesame period of time.
He suggested an increase of 5 percent per year from 2015 to 2017.
RobPreece, lecturer in excise at the University of Canberra, Australia,said one of the causes for increasing black market trade was that thepenalties were too small, and many people would be willing to take therisk to earn high profits.
"The principle is slow adjustment to minimise unintended consequences," he said.
Wittsaid efficient co-ordination between relevant authorities, includingpolice, tax and customs officials as well as the health ministry wascritical to addressing the issue.
"Tax policy and rates shouldbe neutral," he said, adding that tax increases should not hurtcompetitiveness. ‘Neutral' refers to a level that will not forcebusinesses to change their economic routines to accommodate the tax.
Striking a balance in revenue, employment, investment, consumption and production was important, other experts said.
Theforum heard that a two-year study into the development of excise taxpolicy in the context of the ASEAN Economic Community 2015 was to comeout this year. This is expected to provide Vietnam as well as its ASEANneighbours with a roadmap to modernise excise taxation and ensure morestable revenue and consumption.-VNA
Speaking to Vietnam News on the sidelines of the recent 11thAsia-Pacific Tax Forum, they said that a gradual rise would also reducethe impact on consumers.
The experts were referring to increasesto the special consumption tax on liquor, beer and tobacco that havebeen proposed in draft amendments to the Law on Special Consumption Tax.
The draft law, now under discussion, is expected to be approvedthis year and come into force on July 1, 2015. It seeks to hike the taxon tobacco from 65 percent to 70 percent on January 1, 2016, and to 75percent in 2019.
The tax on beer will be increased from 50 percent to 55 percent on July 1, 2015, to 60 percent in 2017 and 65 percent in 2018.
Thespecial consumption tax on liquor with alcohol content of above 20percent will be raised from 50 percent to 65 percent and that on liquorwith less than 20 degrees would be increased from 25 percent to 35percent.
Daniel Witt, President of the International Tax andInvestment Centre, said that gradual tax adjustments withcarefully-planned roadmaps are required to avoid creating a shock andincreasing smuggling and illicit trade.
"The Government of Vietnam's approach is in the right direction," he said.
Buthe said "The 10 percent increase is too high and should be set at just 5percent annually, the same increase proposed for beer. Again, allproducts should have the same, gradual tax increase."
Higherupfront increases could risk incentivising smuggling and shiftingconsumption to the black market as consumers would substituteconsumption to other products that had not experienced the large taxincrease, which would pose risks to Government revenue, he added.
Agreeing,Stephane Gripon, General Director of Diageo Vietnam, said: "Theproposed increases are substantive and could have significant impacts onlegitimate business if not implemented in a reasonable way.
"We are concerned that any excessive increase in tax will only lead to widespread unrecorded and untaxed alcohol."
Hesaid the hikes should not begin before 2016 and should be phased overthree or four years. More importantly, he said, this should be doneequally for all alcoholic beverages – beers, wines, spirits – over thesame period of time.
He suggested an increase of 5 percent per year from 2015 to 2017.
RobPreece, lecturer in excise at the University of Canberra, Australia,said one of the causes for increasing black market trade was that thepenalties were too small, and many people would be willing to take therisk to earn high profits.
"The principle is slow adjustment to minimise unintended consequences," he said.
Wittsaid efficient co-ordination between relevant authorities, includingpolice, tax and customs officials as well as the health ministry wascritical to addressing the issue.
"Tax policy and rates shouldbe neutral," he said, adding that tax increases should not hurtcompetitiveness. ‘Neutral' refers to a level that will not forcebusinesses to change their economic routines to accommodate the tax.
Striking a balance in revenue, employment, investment, consumption and production was important, other experts said.
Theforum heard that a two-year study into the development of excise taxpolicy in the context of the ASEAN Economic Community 2015 was to comeout this year. This is expected to provide Vietnam as well as its ASEANneighbours with a roadmap to modernise excise taxation and ensure morestable revenue and consumption.-VNA
