Luxury-tax hike should be postponed until after 2024
Under the tax system reform strategy by 2030, approved by the Government in April 2022, state management agencies would build up a roadmap for raising luxury tax, or special consumption tax, as called in Vietnam, for tobacco, beer and alcohol.
Le Dang Doanh, former Head of the Central Institute of Economic Management (CIEM), said that raising luxury tax on tobacco is one of the effective measures to reduce the impact of tobacco on people’s health. However, when designing policies, it’s necessary to give convincing figures, use tools to measure and prove the efficiency of policies.
It’s necessary to clarify how large the increase in state budget collections from legal businesses would be; how much money the budget would lose because of smuggling; and how many people would stop smoking.
It’s also necessary to anticipate the business performance of companies that bear the new tax, and possible effects on material growing areas and material suppliers. This information is very important to calculate tax rates, and design a roadmap for tax increases to benefit involved parties.
He stressed that at this time, when the market has not fully recovered after the pandemic, and the Government wants businesses to stabilize production to serve economic growth, any policy which leads to business cost increases would be a barrier to the efforts of bringing businesses back to growth.
Nguyen Van Viet, chair of the Vietnam Beer, Alcohol and Beverage Association, said the increase in luxury tax needs thorough consideration, because taxation impacts large industries which make big contributions to state budget revenue and create millions of jobs.
Viet agreed that it is necessary to have a comprehensive assessment about the possible impact of the tax increase, and find out if the purpose of protecting people’s health can be achieved, or if people would shift to use smuggled goods.
Under the tax system reform strategy to 2030, state management agencies would build a roadmap on raising luxury tax on tobacco, beer and alcohol. This is in line with the Government’s policy shown in government’s Decision 2114 dated December 16, 2021 and the National Assembly’s law building program.
The luxury tax project is a part of the law building program in 2023-2025. This is a reasonable time to help ensure the stabilization of the business environment for large manufacturing industries and create favorable conditions for enterprises to recover after the pandemic.
Hanoi Association for Brand Protection and Anti-Counterfeiting’s Deputy Chair Trieu Quang Thin warned of the smuggling increase once the luxury tax is raised.
Raising luxury tax on tobacco is the solution the countries consider once they need to increase state budget revenue. However, once the tax is raised, the price gap between legally sourced and smuggled tobacco would be wider, which would lead to an increase in smuggling.
Therefore, Thin said, if the Government decides to increase the luxury tax, it needs to figure out master solutions, especially an action program to fight against tobacco smuggling.
If the tax increase is not associated with anti-smuggling measures, this would cause serious consequences, including the increase in smuggling. Meanwhile, if domestic enterprises scale down production, farmers would have to narrow their growing areas. Therefore, it is necessary to think about seeking new jobs and organizing the production of new crops for laborers.
Ngo Tri Long, a respected economist, said while the national economy is recovering, the enterprises in the industries which make big contributions to the state budget are still struggling to survive a series of difficulties. A reasonable tax policy would help businesses regain their growth. Therefore, it is necessary to thoroughly consider possible impact on socio-economic development with attention to disadvantaged groups.
It is also necessary to choose the right time for the tax increase, because enterprises need to have time to recover after the pandemic. If raising tax at this moment, this would have direct impact on the industries, lead to output decrease, which would have direct impact on workers’ incomes. This would also cause disruption of the supply chain which has not recovered fully after the pandemic.
Agreeing with Long, Lawyer Ha Thi Thanh said policymakers need to consider possible undesirable effects of the tax increase, including smuggling and a decrease in business performance of legal enterprises, which would lead to lower tax payments to the state budget.