The impact of Vietnam’s draft law amending the excise tax regime, announced in June this year, extends beyond alcohol, sugary beverages, and tobacco to other specific goods and services. Additionally, the draft law introduces new bases for calculating the excise tax, also known as special consumption tax, and securing refunds.
Revising Vietnam’s excise tax regime
On June 14, 2024, Vietnam’s Ministry of Finance (MOF) submitted a draft law to the government, proposing amendments to the country’s excise tax regime. The draft aims to encourage healthier lifestyle choices while updating regulations to align with international standards and practical realities.
In addition to revising excise tax rates for products like alcohol, sugary beverages, and tobacco, the draft law expands the scope of taxable goods and services. Notably, it broadens the definition of golf-related businesses to include “golf course operations” and “electronic golf practice rooms,” ensuring a more comprehensive taxation framework for various golf activities.
What is excise tax?
Excise tax, also known as special consumption tax, is an indirect tax levied on non-essential or luxury goods and services to regulate their production, importation, and consumption within the domestic market. Although it constitutes a relatively small portion of national tax revenue, excise tax plays a critical role in shaping consumer behavior and promoting policy objectives.
READ MORE: Vietnam Considers Raising Excise Tax for Alcohol, Sweetened Beverages, Tobacco
New bases for calculating special consumption tax in Vietnam
The draft law has proposed a new set of guidelines for calculating excise tax that are clear and adhere to accounting principles, including pricing methods. The proposed methods are as follows:
- Percentage-based method: Tax payable = Taxable price × Tax rate;
- Absolute tax method: Tax payable = Quantity of taxable goods and services × Absolute tax rate (The absolute tax rate is defined as a fixed monetary amount per taxable unit of goods);
- Mixed tax method: A combination of the two methods mentioned above.
According to the MOF, implementing absolute tax and mixed tax methods will motivate manufacturers to invest in improving product quality, value, and pricing. Consequently, this will limit access to harmful goods, especially for young people and those with lower incomes, while also reducing the negative impacts associated with low-quality products.
Timing for determining special consumption tax
A key update in Vietnam’s draft excise tax law is the inclusion of specific provisions in Article 7 defining the timing for determining excise tax liabilities. Previously, these provisions were detailed in guiding circulars. The updated timings are as follows:
- For goods: The tax is determined at the time ownership or usage rights are transferred to the buyer, irrespective of payment status.
- For services: The tax is determined upon the completion of the service or issuance of the service invoice, regardless of whether payment has been received.
- For imported goods: The tax is determined at the time the customs declaration is registered.
Eligible cases for excise tax refund in Article 9
Article 9 of the draft law outlines specific cases eligible for an excise tax refund. Taxpayers may qualify for refunds under the following circumstances:
- Use of imported raw materials for export production: Refunds apply to excise tax paid on imported raw materials used in the production or processing of goods for export. The refund is limited to the actual quantity of goods exported.
- Tax settlement during dissolution or bankruptcy: Refunds are available for excise tax amounts that have not been fully deducted. In cases where a partnership is converted into a cooperative, the cooperative inherits any excess or non-deducted excise tax from the partnership, which can be used for deductions or refunds as per regulations.
- International agreements: Refunds are granted in accordance with international agreements to which Vietnam is a signatory.
Article 9 of the draft law also addresses the excise tax treatment for biofuel production, with the following provisions:
- Offsetting excise tax liabilities: Taxpayers authorized to produce and blend biofuels may offset the non-deducted portion of excise tax on mineral gasoline raw materials against the excise tax payable on other goods or services generated during the same period. This includes any non-deducted tax carried forward from the previous tax period.
- Carrying forward or refunding excess tax: If a portion of the excise tax on mineral gasoline raw materials used for biofuel production remains outstanding after offsetting, it can either be carried forward to the next period or refunded.
- Source of refunds: Refunds will be drawn from the excise tax revenue collected by the central budget.
Imported goods
Taxpayers importing goods subject to excise tax are allowed to deduct the excise tax paid at the import stage from the excise tax liability calculated at the sales stage.
Industry feedback: Concerns among Vietnam’s automakers
The Vietnam Chamber of Commerce and Industry (VCCI) has expressed concerns about a draft law that may hinder the development of the automobile industry in Vietnam. The draft excise tax law refers to “cars that can both carry people and goods,” a term that businesses find problematic because it does not align with the National Standard TCVN 7271:2003, which clearly distinguishes between passenger cars, cargo cars, and special-purpose vehicles. VCCI recommends that this term be clarified or removed to enhance transparency.
Furthermore, Article 9 allows taxpayers to deduct the excise tax on raw materials. However, specialized vehicle manufacturers are unable to benefit from this deduction since their products are not subject to excise tax. This could potentially increase local production costs by 35–40 percent.
The draft law also proposes a lower tax rate for hybrid cars with a separate charging system while excluding those without it. VCCI argues that this distinction is unreasonable, as both types contribute to reducing fossil fuel consumption. They recommend extending the lower tax rate to all hybrid cars to encourage the shift towards cleaner energy vehicles.
By addressing these issues, VCCI believes the amended law can better support the automobile industry and promote environmentally friendly options in Vietnam.
