Vietnam. Will national brewers survive new taxes?

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The tax rise from 1 January, 2016 affected the Vietnamese brewers’ financial position. Yet, this doesn’t seem to be the end of their problems. In April 2016, new Decree issued by the Ministry of Finance, was published. This law changes the tax basis of VAT and SCT.

Decree 108/2015 / ND-CP and Circular 195/2015 / TT-BTC will adversely affect beer producers by changing the tax basis for how the special consumption tax (SCT) is collected. In accordance to the new rules, the tax is levied not on the cost price of the parent company but on that of subsidiaries.

The tax basis change is aimed to regulate the activity and increase transparency of big companies, such as Sabeco, Habeco, and VBL, who by means of many subsidiaries and distributors reduced the final sum of the excise.

The growth of the tax burden can significantly aggravate already difficult financial situation of the brewers. For instance, Sabeco pretax profit over the first 4 months of this year fell by 27% to 1,215 bln dong. Sabeco’s management at the annual meeting arrived at the decision that the company’s profit decline is mainly connected to the increase of the special consumption tax from 1 January 2016.

Despite the fact that the revenues and sales volume went up, the excise rise from 50 to 55% was the main reason for the company’s profit plummeting.

The tax increase resulted in the retail price growth and, in the long run, led to sales decline particularly concerning the local producers , as their production is targeted at more economizing consumers.
For the same reason, the expected profit in 2016 is to decline by 5%, amounting to 3,436 bln dong.