THE LIQUOR INDUSTRY OVERVIEW IN THE FIRST HALF OF 2023 – HOW DOES TAX POLICY AFFECT THE INDUSTRY?
Overview of Vietnam’s liquor industry in the first half of 2023
The beverage production and trading industry is currently an economic-technical industry that makes an important contribution to the socio-economic development of Vietnam. Currently, the alcoholic beverage industry in general and the liquor industry in particular is developing strongly.
These products are used more and more widely in the context of increasing income and people’s living standards. Enjoying drinks and rich cuisine is also the desire of foreign tourists when coming to Vietnam. The beverage industry therefore plays a role in ensuring the stability of the market, promoting the development of industries such as tourism, services, and trade. Thereby contributing significantly to the State budget, estimated at about 60 trillion VND/year.
The beverage industry in general and the liquor industry in particular also create direct and indirect jobs for millions of workers in the production and business chain. The process includes the supply of raw materials and auxiliary materials for production, packaging, packaging, transportation, storage, distribution, direct consumption services, etc.
Situation of the spirits industry in the first half of 2023
According to Rodolphe Lameyse, CEO of Vinexposium, with a young population and growing middle class, Vietnamese people are very sensitive to social media trends and willing to try a variety of foods and drinks. with new flavors. Today’s young generation also has the desire to enjoy unique alcoholic beverages that are different from the previous generation.
This is a global trend you can see in many countries like Korea, China and also Europe. Vietnam is no exception to the trend as young people begin to pay more attention to cocktails. This is also why spirits are becoming increasingly important in the events of Vinexposium – the world’s leading specialist event organizer for the liquor industry..
According to VIRAC, Vietnam’s spirits production in 6 months decreased by x% (20%) compared to the same period in 2022.
According to VIRAC, the causes of the decline in the spirits industry were pointed out that:
The prices of main and auxiliary materials such as bottles, buttons, longan, rice, etc., along with logistics costs, have cooled down compared to 2022, but compared to the period 2015-2019 before the epidemic was still at a high level.
The decline in production of spirits in Vietnam, in addition to macroeconomic and inflationary factors, also comes from the weakness of the largest domestic producer, Vodka yeast, due to internal turmoil leading to a recession. weak in production and business.
In the first two quarters of this year, Vietnam is having a trade deficit in spirits products. In which, export output is mainly in low-value products, and high-value product lines are imported.
The market share of the spirits industry (2017 – 2022) is distributed among the top 10 companies including: William Grant & Sons Vietnam, LVMH Moët Hennessy Louis Vuitton SA, Aroma Co Ltd , ThaiBev, Avina JSC, … (see full view) information in VIRAC’s report)
Wine is also not out of the decline in production
The middle-class population in Vietnam is also growing rapidly, outpacing other countries in Southeast Asia. This segment is also increasingly receptive to Western tastes and preferences, willing to invest in wine because of the luxury image it brings, even at a higher price point.
However, according to VIRAC, Vietnam’s wine industry production in 6 months experienced a decline of x% (45%) compared to the same period in 2022.
Explaining the reason for the decline, VIRAC point out that:
Consumption of the wine industry in Vietnam is quite slow, inventories are always high, and businesses have difficulty in turning around capital for production investment.
Difficulties in competing with imported goods also reduce the production motivation of enterprises.
The market share of domestic wine enterprises is decreasing, giving way to foreign distribution enterprises.
In which, the top 10 largest wine suppliers in Vietnam (2017 -2022) include: Thang Long Wine, Grands Chais de France SA, Les Pernod Ricard Vietnam, Lam Dong Wine, … (see more information at VIRAC report)
Vietnam’s wine industry is currently having a trade deficit in wine products. In which, mainly export products in HS code 2206 (especially sake line) and main import grape wine products. Thailand is the main and stable import market for sake products (HS code 2206).
The impact of tax rates on the production and business of the Vietnamese liquor industry
Previously, on April 19, 2023, the Ministry of Health issued Official Letter No. 2275 to the Ministry of Finance to give opinions on the formulation of a proposal to develop a draft Law on Special Consumption Tax. In the official dispatch, for alcohol and beer products, the Ministry of Health requested to update the data affecting the decision to request the adjustment of tax rates for beer and liquor industry products.
The ministry pointed out that the level of alcohol use is currently increasing at an alarming rate and causing many serious consequences for health, economy – society. Scientific evidence shows that alcohol is the direct cause of at least 30 diseases and injuries. It is also the indirect cause of more than 200 diseases in the ICD 10 International Classification of Diseases.
In addition, the price of alcohol and beer is currently very cheap along with a strong increase in purchasing power. According to calculations by the World Health Organization, the tax rate on the retail price of liquor industry in Vietnam is only about 30%. Meanwhile, in many countries the tax on beer and liquor industry accounts for about 40% – 85% of the retail price. The purchasing power of beer and liquor of Vietnamese people increased rapidly due to the rapid increase in income level while the price of beer and liquor did not increase or increased very slowly.
Besides, the Ministry of Health also pointed out that Vietnam needs to increase taxes to reduce consumption of beer and liquor industry in order to reduce access to alcohol by young people and the poor. Because these are vulnerable subjects and suffer serious consequences from the harmful effects of liquor industry.
The World Health Organization has also recommended that tax policy is currently one of the most effective measures to control the harmful effects of liquor industry as well as the burden of disease or death caused by it.
Therefore, it is easy to see that the adjustment to increase excise tax on liquor industry products according to Law No. 70/2014/QH13 issued on November 26, 2014 is not strong enough to affect the decrease in alcohol consumption.
According to the recommendations of the World Health Organization (WHO), along with the tax increase schedule according to income growth and inflation, the Ministry of Finance also proposes to increase the excise tax rate for the liquor industry to increase the tax rate. the selling price of these products increased by at least 10%. However, in the opinion of many experts, in the current context, we need to carefully consider the effects of increasing tax rates on alcohol products.
Can Van Luc, an economist, said that the excise tax is being applied to the liquor industry from 35% to 65% (depending on type), 65% for beer. Recently, the excise tax has been revised and increased while the Government has strengthened measures to limit beer and liquor industry with Decree 100/2019/ND-CP on penalties for violations in the field of traffic.
Despite the above efforts, Vietnam is still ranked 2nd in Southeast Asia and 3rd in Asia in terms of liquor industry consumption per capita. Therefore, the proposal to increase tax on alcohol and beer as the Draft Proposal may be appropriate. But we need to take into account the roadmap and the time to increase accordingly, especially now that the alcohol business is facing a difficult situation.
On the morning of July 4, in Hanoi, Investor Magazine held a workshop “Suggestions on developing the revised Law on Special Consumption Tax” with the aim of discussing and commenting on a number of project issues. amendments to this bill. One of the main contents of the Law on Special Consumption Tax, proposed by the Ministry of Finance to be amended, includes: regulations on the Tariff, the (additional) excise tax rate, including adjustment of the excise tax rates for cigarettes and tobacco. beer and liquor industry.
Especially for beer and liquor industry product, there are many opinions agreeing with the proposal of the Ministry of Finance to keep the current relative tax calculation method. Because the change in tax calculation at the present time can have a great impact on the production and business of the beer and liquor industry, which is facing many difficulties due to the heavy impact of the COVID-19 pandemic and war. In the world.
Adverse impacts from a number of related mechanisms and policies such as the Law on Prevention and Control of Alcohol Harm, Decree 100/2019/ND-CP, may result in the loss of competitiveness of Vietnamese branded popular beer (currently at present). accounts for 80% of the market share), affecting state budget revenue.
For many reasons including the above reasons, the Vietnam Beer – Alcohol – Beverage Association (VBA) has proposed not to amend the Law on Special Consumption Tax until at least 2025. Besides, it should be stable. tax policy as current to help businesses overcome difficulties and recover.
II. RECOVERY AND DEVELOPMENT PROSPECTS OF THE LIQUOR INDUSTRY THE LAST HIDE OF 2023
Prospects for spirits
According to VIRAC estimates, per capita spending on spirits will increase by 7% in 2023. The reason is explained by:
As the number of people aged 18 and over increases, the demand for liquor industry also increases
After 2 years of the pandemic, entertainment venues: such as restaurants and bars, lively activities stimulate the consumption demand of the spirits industry.
Tourism plays an important role in product recovery, especially tourists from Europe and North America whose consumer culture is a factor that positively influences the Vietnamese liquor industry.
Besides prospects, there are still challenges coming from foreign enterprises. Domestic liquor enterprises face fierce competition with foreign brands such as Hitejinro with soju products. Although only appearing in Vietnam from 2020-2021, Hitejinro has quickly gained market share, capturing the consumption trends of the young population.
Some domestic liquor industry companies such as Halico, Aroma, and Avina are all narrowing their market share due to the lack of appropriate marketing policies and inefficient production activities.
Outlook for the liquor industry
According to VIRAC, it is estimated that per capita spending on spirits will increase by 8% in 2023, when the economy begins to show positive changes.
Recovery of tourism to Vietnam, stimulating domestic liquor industry consumption demand. The service sector, on-site consumption: restaurants and bars are as active as they were before the pandemic, contributing to the positive growth rate of goods.
However, similar to the situation with the spirits industry, the positive outlook will be in favor of imported product lines due to more competition in quality and design as well as meeting the needs of consumers.
Information on Vietnam’s liquor industry is compiled from the “Report on Vietnam beverage industry in Q1/2023” conducted by VIRAC. The report provides full information on the macroeconomics, trade supply and demand of the beer, spirits, wine and beverage industry, relevant information and forecasts from the latest updated data.
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