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Luxury tax bill raises worries   2008-08-21 - Tien phong

A lot of businesses have expressed dissatisfaction with the provisions in the bill on amending the special consumption tax (luxury tax).


Trillions VND of tax loss anticipated



Liquor and brewery producers are most worried about the bill. The Ministry of Finance has suggested the tax rate of 20% on drinks with the alcohol content of 20% vol and medicinal liquor, and the rate of 60% on liquor with the alcohol content of over 20% vol.


According to the Vietnam Liquor, Brewery and Drinks Association, with the currently applied luxury tax of 30%, the state loses trillions of VND in tax collection as it cannot control small liquor workshops.


In 2007, Vietnam collected VND1tril in tax from liquor producers, mostly from joint-stock companies, while small establishments, which make 300mil litres a year, or 75-80% of the consumption volume, evaded tax.


Halico, a leading liquor producer in Vietnam, now can make several types of 40% vol liquor, with the quality nearly equal to import products and at much lower prices. However, the products just bring 3% of the company’s total turnover, as the products cannot be as competitive in price as ‘quoc lui’ (a kind of illegal wine).


Halico, Anh Dao and Origina Vietnam, the leading brand names of Vietnam, said that the proposed luxury tax rates prove to be overly high, and will pave the way for low-quality and toxic products to dominate the market.


The currently applied law stipulates that bottled and canned beer is imposed 75% luxury tax, while bia hoi and fresh beer 40%. Meanwhile, MOF has proposed to impose 50% on the former and 50% on the latter.


According to Viet Ha Company, if imposing 50% on bia hoi, thousands of brewery establishments will go bankrupt, while tens of thousands of workers at establishments and distribution points will lose their jobs.


Automobiles, air-conditioners will face difficulties


Under the current luxury tax law, there are three tax rates on automobiles: 50% on less than 5-seat vehicles, 30% on 6-15-seat, and 15% on 16-24-seat. Meanwhile, MOF plans to diversify automobiles into four types which will bear different luxury tax rates.


According to the Vietnam Automobile Manufacturers’ Association (VAMA), it is logical to tax based on cylinder capacity and fuel consumption; however, it said that if the proposed taxation method is applied, manufacturers will all rush to make 4-seat cars.


Under the current law, air-conditioners with the capacity of less than 90,000 BTU are subject to luxury tax. The law does not include clear stipulations about whether to collect luxury tax on air conditioners with the capacity of less than 90,000 BTU used in transport vehicles (automobiles, trains and ships).


Which tax rates most suitable?


Ho Hai, Director of Halico, said that luxury tax in Vietnam is overly high compared to the world if considering commodities’ values. The high tax rates have been encouraging people to buy illegal goods at cheaper prices. This will put difficulties on producers, who spend money on high technologies and other factors to make high-quality products.


The current taxation structure is one of the main reasons behind the counterfeit goods. China, since 2004, has imposed the luxury tax of 20% on brewery products and import tax of 10%, which has helped make the market healthier.


Some experts have suggested imposing the tax rate of 30% on over 20% vol liquor until 2012, while the tax rate could be gradually raised to 40-50% in the subsequent years, after considering the situation.


As for brewery products, a lot of producers have proposed considering beer as other types of drinks, and imposed 6-8% instead of 50% as proposed by MOF. They think beer should be seen as a popular drink, not a luxury product.


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