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

Photogallery US to Send 3,000 Troops to Liberia in Expanded Ebola Effort

At US Centers for Disease Control and Prevention in Atlanta, Obama is to announce troop deployment, other details of US plans to fight Ebola outbreak More

China Muslims Work to Change Perceptions After Knife Attacks

Muslims in Kunming say that they condemn the violence, it is not a reflection of the true beliefs of their faith More

Humanitarian Aid, Equipment Blocked in Cameroon

Move is seen as a developing supply crisis in West Africa More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Enviropreneur Seeks to Save the Environment, Empower the Communityi
X
September 16, 2014 2:06 PM
Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video Enviropreneur Seeks to Save the Environment, Empower the Community

Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video West Trades Accusations Over Ransoms

As world leaders try to forge a common response to the threat posed by Islamic State militants in Iraq and Syria, there is simmering tension over differing policies on paying ransoms. In the past month, the jihadist group has beheaded two Americans and one Briton. Both countries refuse to pay ransom money. As Henry Ridgwell reports for VOA from London, there is uncertainty in the approach of some other European nations.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Washington DC Mural Artists Help Beautify City

Like many cities, Washington has a graffiti problem. Buildings and homes, especially in low-income neighborhoods, are often targets of illegal artwork. But as we hear from VOA’s Julie Taboh, officials in the nation's capital have come up with an innovative program that uses the talents of local artists to beautify the city.
Video

Video US Muslim Leaders Condemn Islamic State

Leaders of America's Muslim community are condemning the violent extremism of the Islamic State group in Iraq and Syria. The U.S. Muslim leaders say militants are exploiting their faith in a failed effort to justify violent extremism. VOA correspondent Meredith Buel reports.
Video

Video Americans' Reaction Mixed on Obama Strategy for Islamic State Militants

President Barack Obama’s televised speech on how the United States plans to “degrade and destroy” the group known as the Islamic State reached a prime-time audience of millions. And it came as Americans appear more willing to embrace a bolder, tougher approach to foreign policy. VOA producer Katherine Gypson and reporter Jeff Seldin have this report from Washington.
Video

Video Authorities Allege LA Fashion Industry-Cartel Ties

U.S. officials say they have broken up crime rings that funneled tens of millions of dollars from Mexican drug cartels through fashion businesses in Los Angeles. Mike O'Sullivan reports that authorities announced nine arrests, as 1,000 law enforcement agents fanned out through the city on Wednesday.
Video

Video Bedouin Woman Runs Successful Business in Palestinian City

A Bedouin woman is breaking social taboos by running a successful vacation resort in the Palestinian town of Jericho. Bedouins are a sub-group of Arabs known for their semi-nomadic lifestyle. Zlatica Hoke says the resort in the West Bank's Jordan Valley is a model of success for women in the region.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid

World Currencies

EUR
USD
0.7735
JPY
USD
107.03
GBP
USD
0.6155
CAD
USD
1.1011
INR
USD
60.954

Rates may not be current.