October 8, 2024
Wealth Management

Phased tax hikes crucial for sustaining business operations


When adjusting special consumption tax rates, it is essential to carefully plan the increases and implement a gradual approach to ensure business continuity, protect jobs, and allow the market to adapt smoothly by 2030, heard VIR’s seminar on the issue on August 14 in Hanoi.

Phased tax hikes crucial for sustaining business operations

The beers, wines, and spirits sector was estimated to have contributed around $2.4 billion, or approximately 3.4 per cent of the state budget revenue in 2023.

This issue is currently under review by the Ministry of Finance as part of the draft amendments to the Special Consumption Tax (SCT) Law. The revised law is expected to be discussed by the 15th National Assembly during its next session in October and November, with approval anticipated in May 2025.

The objective of these amendments is to regulate consumption levels and curb the abuse of alcohol.

The beverage sector has seen a continuous decline in average profits since 2021, with industry-wide tax contributions dropping by an average of 10 per cent annually from 2020 to 2023. In the first six months of 2024 alone, inventory levels have surged by 29 per cent compared to the same period last year, the seminar heard.

At the seminar, many experts noted that a sharp and rapid increase in the SCT on alcoholic beverages could exacerbate the difficulties faced by businesses and workers in the industry, as well as those in related sectors.

Nguyen Thi Cuc, chairwoman of the Vietnam Tax Advisory Association and former deputy director general of the General Department of Taxation (GDT), cited a 2022 decision which called for revising SCT policies to align with evolving consumer trends and government priorities on public health and environmental protection.

The decision also includes a plan to gradually increase taxes on tobacco and alcohol from 2026 to 2030, aiming to raise prices by at least 10 per cent as recommended by World Health Organization.

“We fully support the SCT rate increases on alcohol during this period to curb consumption and protect public health,” Cuc stated. “However, the tax hikes should be phased in a way that sustains business operations and preserves jobs across the supply chain, allowing the market and consumers to adapt smoothly to these changes by 2030.”

Nguyen Van Phung, former head of the Large Enterprise Tax Management Department of the GDT said the primary role of taxes is to generate revenue for the state budget.

“While tax collection also influences production, consumption, and income behaviours – thereby impacting supply and demand as well as social relations – taxes are not a cure-all. Their main goal remains to create income for the state,” Phung said. “Tax adjustments should be part of a carefully crafted government strategy, especially in our current context where combating corruption is critical. This means tax policies must be fair, effective, and based on thorough research.”

Le Tuan Anh, director-general of the Department of Industrial Economics under the Ministry of Planning and Investment, noted that while Vietnam’s growth is promising, there are ongoing challenges to contend with.

“Some industries, like beverages, are still struggling. Despite efforts, production and consumption in the beverage sector remain below expectations, with some companies reporting significant losses,” Anh observed. “The tax hike must be balanced to avoid bankruptcies; we need a rate that secures revenue without harming businesses.”

Anh also highlighted the need for effective administrative measures to influence behaviour and warned that higher taxes could lead to increased smuggling.

Hoang Van Cuong, a member of the National Assembly’s Finance and Budget Committee, underscored a key consideration regarding the implementation of SCT increases.

“When we raise SCT, it is crucial to create a significant impact rather than making small, incremental hikes each year,” Cuong advised. “If the increase is minimal annually, consumers will easily adapt without noticing much change, leading to little to no shift in consumption behaviour.”

Raising SCT could potentially drive consumers towards informal products or increase home consumption, which might negatively impact the service industry, he added, and a downturn in the service sector could adversely affect economic growth.

“Tax increases must be coupled with additional measures, such as public awareness campaigns and efforts to shift consumer behaviour. If we simply raise taxes without altering our approach and enforcement, achieving the policy’s objectives will be challenging,” Cuong said.

VIR conference on Special Consumption Tax Law attracts thousands VIR conference on Special Consumption Tax Law attracts thousands

A conference themed “Tax Amendments to Promote Business Activities” held by VIR has attracted thousands of people both online and offline.





Source link

Leave a Reply

Your email address will not be published. Required fields are marked *