Vietnam Considers Raising Excise Tax for Alcohol, Sweetened Beverages, Tobacco

We discuss the Ministry of Finance’s proposal to hike the Vietnam excise tax rates for alcohol, sugary drinks, and tobacco products and how this policy shift could impact consumer facing businesses.

On June 14, Vietnam’s Ministry of Finance (MOF) submitted to the government a draft law proposing amendments to the excise tax on alcohol, sugary drinks, and tobacco. These amendments are part of multiple efforts to incentivize a healthier lifestyle among the country’s citizens.

MOF’s proposed amendments to excise tax are not just a standalone initiative but a crucial part of Vietnam’s comprehensive efforts to implement the National Nutrition Strategy for 2021-2030 with a vision to 2045, and the National Plan for prevention and control of non-communicable diseases and mental disorders for 2022-2025.

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This alignment underscores the government’s strong commitment to its citizens’ health and well-being with a strategic approach.

Excise tax (or special consumption tax) is an indirect tax imposed on unnecessary or luxurious goods or services to regulate their production, imports, and consumption in the domestic market. The tax also contributes a small portion to the national tax revenue.

READ: Special Consumption Tax in Vietnam

Upgrades needed after reassessing the current excise tax law

Law No. 27/2008/QH12 on excise tax (hereinafter “2008 Excise Tax Law”) has been effective from April 1, 2009.

The law underwent four amendments in 2014, 2016, and 2022 to address practical inadequacies and align with tax management regulations during those periods.

An overall reassessment by the MOF shows that, despite certain achievements, the 2008 law has revealed several shortcomings and limitations:

• Narrower taxable objects than international norms;
• Lack of clarity on taxable and non-taxable object regulations and the product descriptions in the excise tariff, leading to implementation problems;
• Inefficient excise tax rates on products like tobacco, alcohol, and automobiles. The rates are too low to effectively limit the consumption of these products or regulate the earnings of high-income individuals in society;
• Inability to achieve some of the goals outlined in the 2011-2020 Tax Reform Strategy, particularly those related to research on a mixed tax method for goods harmful to human health and the environment;
• Absence of regulations on tax refunds for items whose production is encouraged and consumption is environmentally friendly.

Therefore, the MOF has emphasized the need for urgency in approving the amended Excise Tax Law to ensure effective excise tax implementation.

The draft amendments adhere to the assessment of basic policy groups on taxable and non-taxable objects, tax bases, taxed prices, tax rates, tax refund and deduction, and implementation provisions approved by the National Assembly (NA) and the NA Standing Committee.

Vietnam’s proposed excise tax hikes

The proposed amendments to the excise tax for alcohol, sweetened beverages, and tobacco are listed in the table below.

Alcohol

Note: The Ministry of Finance’s proposed raise in excise taxes between 2026-2030 are aligned with WHO recommendations to increase the retail price by 10 percent.

Sweetened beverages

The MOF suggests imposing a 10 percent excise tax on sugary drinks to halt excessive consumption. The ministry argues that consumers might choose other products with less or no added sugar rather than continue with those whose prices are up by 10 percent.

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It also expects the new tax to contribute VND 2.4 trillion (US$94 million) to the government’s budget in the initial year before decreasing as consumers turn to alternatives.

Per the national standard TCVN 12828:2019, the proposed tax rate will be levied on water-based beverages, including flavored drinks (energy drinks, sports drinks, electrolytes drinks), caffeinated drinks, tea-based drinks, herbal drinks, drinks featuring fruit juice, and cereal drinks.

The increased excise tax will not apply to milk and dairy products, water-based nutritional products, bottled water, vegetable-fruit drinks and nectar, and cocoa-based products.

Tobacco

The draft law prescribes that cigarettes, shredded tobacco, cigars, snuff, and other forms of tobacco should be subject to excise tax. It recommends a temporary 75-percent excise tax rate for tobacco, a 10 percent increase from the current rate of 65 percent.

Then, during the 2026-2030 period, tax rates for different types of tobacco will be increased:

• Tax on cigarettes will rise slowly by VND 5,000-10,000 (US$0.2-0.4) per pack;
• Tax on cigars by VND 50,000-100,000 (US$2-4) per item; and
• Tax on shredded tobacco and other forms by VND 50,000-100,000 (US$2-4) per 100 grams or milliliters.

Vietnam to promote a healthier lifestyle with the new tax regime

The proposed amendments for alcohol, sugary drinks, and tobacco are aligned with Vietnam’s goal of improving its citizens’ health.

Citing the National Institute of Nutrition, the MOF explained that the annual per capita consumption of sweetened beverages in Vietnam grew by about one and a half times in seven years to 70.56 liters in 2020. Further, the ratio of overweight and obese children and teenagers (aged 5-19) in the country had doubled over a decade to 19 percent that year, above the 17.3 percent average of Southeast Asia.

To address the issue, Vietnam’s National Nutrition Strategy for the 2021-2030 period, with a vision to 2045, promulgates competent authorities to impose excise taxes on sweetened beverages, among other solutions.

The ministry also claims the excise tax increase on alcohol is to adopt the World Health Organization’s (WHO) recommendation of increasing the retail price of these products by 10 percent.

In addition, the draft law is projected to reduce the smoking rate among men from 42.7 percent (2022) to 28.6 percent (2030). Thus, the state budget revenue from tobacco is anticipated to grow to VND 39.2 trillion (US$1.54 billion) in 2030, 2.2 times higher than the 2022 revenue.

Balancing public health goals and economic implications

Vietnam’s government has adopted a long-term strategy to reduce the consumption of unhealthy products, as indicated by the draft law and its underlying causes. This effort is unlikely to be reversed, making the implementation and execution of the draft law crucial to avoid undesirable consequences.

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While the draft law demonstrates the government’s commitment to protecting public health, it also carries significant economic implications. It may directly impact the revenue of related businesses, potentially resulting in a loss of state tax revenue.

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

According to recent reports, Heineken announced it would suspend operations at its brewery in Quang Nam province starting in June due to weak demand and changing consumption patterns. The world’s second-largest brewer said it had invested €1 billion (US$1.07 billion) in Vietnam and directly employed over 3,000 workers in its breweries.

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

WHO advocates for increasing taxes on alcohol and sweetened beverages

Despite concerns about the economic ramifications, excise tax increases still receive global recognition as a viable method to encourage people to pursue a healthier lifestyle.

At the end of 2023, the WHO released a technical manual on alcohol tax policy and administration. Its data shows a low rate of taxes applied to unhealthy products, such as alcohol and sugary sweetened beverages (SSBs) worldwide, highlighting that most countries are not incentivizing healthier behaviors through taxes.

According to the WHO, the average excise tax represents just 6.6 percent of the price of soda globally, despite 108 countries taxing some sort of SSBs. Citing a 2017 study, the WHO claims that increasing alcohol prices by half would help avert over 21 million deaths over 50 years and generate nearly US$17 trillion in additional revenues, equivalent to the total state revenue of the world’s top eight economies in a year.

The case of Lithuania: Lithuania increased alcohol tax revenue from €234 million (US$251.19 million) in 2016 to €323 million (US$346.73 million) in 2018 after increasing the alcohol tax. Its alcohol-related deaths also dropped from 23.4 per 100,000 people in 2016 to 18.1 per 100,000 people in 2018.

According to the WHO, taxing alcohol and SSBs helps reduce their use and encourages companies to make healthier products. Simultaneously, it helps prevent injuries and noncommunicable diseases like cancer, diabetes, and heart disease.

Conclusion

The draft excise tax law proposed by the MOF indicates an irreversible shift among Vietnam’s policymakers to reduce the consumption of unhealthy products. Considering the economic implications of the move, businesses should take this determination into account in their decision-making processes. One of the most plausible solutions is to invest in research and develop healthier products to meet the new market demands.

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