News / Economy

Vietnamese Tax Dodgers Hurt Foreign Coffee Firms

A man piles coffee cherries while processing them at a buying agent in Son La province, west of Hanoi, Nov. 19, 2012.A man piles coffee cherries while processing them at a buying agent in Son La province, west of Hanoi, Nov. 19, 2012.
x
A man piles coffee cherries while processing them at a buying agent in Son La province, west of Hanoi, Nov. 19, 2012.
A man piles coffee cherries while processing them at a buying agent in Son La province, west of Hanoi, Nov. 19, 2012.
Reuters
Some local dealers are using a tax dodge to buy up much of the coffee in Vietnam, the world's top producer of the robusta variety used for instant coffee, slashing the market share of international traders.

The dealers take advantage of loopholes in Vietnam's system governing value-added-tax payments and refunds for exportable goods, using some of the resulting price advantage to outbid competitors in buying coffee from farmers, traders said.

The coffee is then being sold on to exporters, but leaving a murky paperwork trail.

European Coffee Federation [ECF] secretary general Roel Vaessen said the body, representing major international trade houses and roasters, was concerned about the issue.

"It has been drawn to our attention, we do take it seriously, and we have had internal consultations with our members on how best to address the issue," said Vaessen, declining to comment further.

Vietnam's cash crop

According to the organization's website, ECF members include companies such as Louis Dreyfus, Volcafe, Bernhard Rothfos and Nestle.

Vietnam's total export volumes, worth roughly $3 billion a year, are unlikely to be much affected and consumers worldwide therefore will feel little impact on price, while coffee farmers are getting a bit more for their beans.

The harm arising from the VAT dodge is felt by Vietnam's state coffers, for which coffee provides a major revenue stream, and by companies that pay taxes. Efforts to increase the traceability and transparency of coffee origins also are being damaged.

"This tax dodging has made it difficult for legitimate companies to buy coffee locally," said an executive of a Vietnamese export firm based in Ho Chi Minh City, who asked not to be identified.

International traders estimate their market share of exports has fallen to about 20 percent in the current season, from 35 percent in 2011/12, mostly due to this tax issue.

Foreign firms say it also may have a longer-term impact on foreign direct investment in Vietnam, although the country's dominance in robusta coffee is assured for now.

"Trading companies with expansion plans will put them on ice," said a trader at an international firm, adding that future projects could be shifted to rival robusta coffee producers in Southeast Asia, including Indonesia and Laos.

Unfair advantage

The dealers avoiding VAT can gain a competitive advantage of up to $70 per tonne of coffee they buy from farmers - amounting to about four percent of the total, making it difficult for international traders to compete, traders said.

Liffe robusta coffee futures were at $2,004 per tonne shortly after 1100 GMT on Thursday.

Asked to comment on the tax issue, the chairman of the Vietnam Coffee and Cocoa Association [Vicofa], Luong Van Tu, said: "There are several small businesses that have been dodging the tax, while most others follow government rules properly."

The local authority of the country's largest coffee growing province, Daklak, said it knows of the practice and has set up checkpoints to inspect coffee cargoes for proper invoicing.

Huge export volume

Vietnam exported 24.4 million 60-kg bags of coffee in 2011/2012, according to the U.S. Department of Agriculture. World 2011/2012 coffee exports were estimated by the USDA at around 114.4 million bags.

Its May coffee export volume is forecast to fall to around 100,000 tons, from an estimated 110,000 tons loaded in April, due to slowing trade and difficulties in buying beans locally, traders said.

The tax issue is creating problems with traceability, as invoices can help provide transparency along the supply chain, aiding sustainability certification schemes such as Rainforest Alliance and 4C certified coffee.

"A lot of companies invested serious efforts in building up these sustainably sourced coffee flows, and then because of the tax situation and the way coffee is being channelled locally, that is lost," said an industry source.

You May Like

Ukraine Purges Interior Ministry Leadership With Pro-Russian Ties

Interior Minister Avakov says 91 people 'in positions of leadership' have been fired, including 8 generals found to have links to past pro-Moscow governments More

US Airlines Point to Additional Problems of any Ebola Travel Ban

Airline officials note that even under travel ban, they may not be able to determine where passenger set out from, as there are no direct flights from Liberia, Guinea or Sierra Leone More

Nigerian President to Seek Another Term

Goodluck Jonathan has faced intense criticism for failing to stop Boko Haram militants More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Talks to Resume on Winter Gas for Ukrainei
X
Al Pessin
October 25, 2014 4:21 PM
Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Talks to Resume on Winter Gas for Ukraine

Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Smugglers Offer Cheap Passage From Turkey to Syria

Smugglers in Turkey offer a relatively cheap passage across the border into Syria. Ankara has stepped up efforts to stem the flow of foreign fighters who want to join Islamic State militants fighting for control of the Syrian border city of Kobani. But porous borders and border guards who can be bribed make illegal border crossings quite easy. Zlatica Hoke has more.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.

All About America

AppleAndroid

World Currencies

EUR
USD
0.7893
JPY
USD
107.68
GBP
USD
0.6238
CAD
USD
1.1214
INR
USD
61.185

Rates may not be current.