Vietnam is contemplating increasing excise tax for alcohol, sweetened beverages, and tobacco products

The proposal from the Ministry of Finance to increase excise tax rates for alcohol, sugary drinks, and tobacco products in Vietnam is being discussed in terms of its potential impact on businesses catering to consumers.

On June 14, the Ministry of Finance (MOF) presented a draft law to the government suggesting changes to the excise tax on alcohol, sugary drinks, and tobacco. These changes are part of a wider effort to encourage healthier lifestyles among the population.

The proposed adjustments to the excise tax are not an isolated measure but an integral part of Vietnam's comprehensive initiatives to implement the National Nutrition Strategy for 2021-2030 and the National Plan for Prevention and Control of Non-communicable Diseases and Mental Disorders for 2022-2025.

This demonstrates the government's strong commitment to promoting the health and well-being of its citizens through a strategic approach.

Excise tax, also known as special consumption tax, is an indirect tax levied on non-essential or luxurious goods and services to regulate their production, import, and consumption within the country. This tax also contributes a small portion to the national tax revenue.

Revisions are required following a reevaluation of the existing excise tax legislation

The Excise Tax Law of 2008, also known as Law No. 27/2008/QH12, came into effect on April 1, 2009. This law has undergone four amendments in 2014, 2016, and 2022 to address practical deficiencies and align with tax management regulations during those periods.

A comprehensive reassessment by the Ministry of Finance (MOF) has revealed several shortcomings and limitations of the 2008 law, including narrower taxable objects compared to international norms, lack of clarity on taxable and non-taxable object regulations, and inefficient excise tax rates on products such as tobacco, alcohol, and automobiles.

The MOF has stressed the urgency of approving the amended Excise Tax Law to ensure effective implementation, with the draft amendments focusing on basic policy groups related to taxable and non-taxable objects, tax bases, taxed prices, tax rates, tax refunds, and deductions, and implementation provisions approved by the National Assembly (NA) and the NA Standing Committee.

Proposed increases in Vietnam's excise taxes

Proposed increases in Vietnam's excise taxes

The Ministry of Finance (MOF) proposes a 10 percent excise tax on sugary drinks to reduce excessive consumption, encouraging consumers to choose products with lower or no added sugar. The ministry anticipates that the new tax could generate VND 2.4 trillion (US$94 million) for the government in the first year, with potential decreases as consumers seek alternative options.

According to the national standard TCVN 12828:2019, the proposed tax rate will apply to a variety of water-based beverages, including energy drinks, sports drinks, tea-based drinks, and those containing fruit juice or cereal. However, the increased excise tax will not affect milk and dairy products, nutritional water-based products, bottled water, vegetable-fruit drinks nectar, and cocoa-based products.

In addition to sugary drinks, the draft law also recommends a 75 percent excise tax rate for tobacco products, marking a 10 percent increase from the current rate of 65 percent. Furthermore, tax rates for different types of tobacco are set to increase gradually during the 2026-2030 period, with specific adjustments for cigarettes, cigars, and shredded tobacco.

Vietnam aims to encourage a more health-conscious way of living through the implementation of a new tax system

The proposed revisions regarding alcohol, sugary drinks, and tobacco are in line with Vietnam's objective of enhancing the health of its population. According to the National Institute of Nutrition, the average consumption of sweetened beverages per person in Vietnam increased by 1.5 times over seven years, reaching 70.56 liters in 2020.

Moreover, the prevalence of overweight and obese children and teenagers (aged 5-19) in the country doubled over a decade, reaching 19 percent in 2020, higher than the Southeast Asia average of 17.3 percent.

To tackle this issue, Vietnam's National Nutrition Strategy for the 2021-2030 period, with a vision to 2045, mandates authorities to implement excise taxes on sweetened beverages, among other measures. The ministry also justifies the increase in excise tax on alcohol by citing the World Health Organization's recommendation to raise the retail price of these products by 10 percent.

Furthermore, the draft law aims to reduce the smoking rate among men from 42.7 percent in 2022 to 28.6 percent in 2030. Consequently, it is anticipated that state revenue from tobacco will increase to VND 39.2 trillion (US$1.54 billion) in 2030, which is 2.2 times higher than the revenue in 2022.

Balancing the objectives of public health with the economic consequences

Vietnam has adopted a long-term strategy aimed at reducing the consumption of unhealthy products, as outlined in the draft law and its root causes. This initiative is expected to remain in place, highlighting the importance of effectively implementing and enforcing the draft law to prevent negative outcomes.

While the draft law reflects the government's dedication to safeguarding public health, it also carries significant economic implications that could directly impact the revenues of related businesses, potentially leading to a decrease in state tax income.

In March 2023, the European Chamber of Commerce (EuroCham), the American Chamber of Commerce (AmCham), and the Vietnam Beer-Alcohol-Beverage Association (VBA) collectively expressed concerns about a proposed excise tax on sugary drinks. They argued that international experience had shown such taxes to be ineffective in reducing obesity and diabetes, while also causing significant social and economic repercussions.

Reports indicate that Heineken plans to halt operations at its brewery in Quang Nam province in June due to weak demand and changing consumption patterns. The world’s second-largest brewer had invested €1 billion (US$1.07 billion) in Vietnam and directly employed over 3,000 workers in its breweries.

Vietnam’s beer industry saw an 11 percent decrease in returns last year, with profits declining by 23 percent. With the potential for an excise tax increase and additional levies, the future of these firms may become even more challenging.

Despite concerns about the economic impact, increasing excise taxes on alcohol and sweetened beverages continues to receive global recognition as a viable method to promote a healthier lifestyle.

At the end of 2023, the WHO released a technical manual on alcohol tax policy and administration, providing data to support this approach.

Conclusion

The proposed excise tax law from the MOF reflects a permanent change in Vietnam's policymakers' approach to decreasing the use of harmful products. Given the economic impact of this shift, businesses should factor this decision into their planning. One potential solution is to allocate resources towards research and development of healthier products to align with the evolving market demands.