Excise tax on sugary drinks may drag Vietnam GDP down 0.45%: economists

A 10% excise tax on sugary drinks in Vietnam could lead to a GDP decline of 0.448%, equivalent to VND42.57 trillion ($1.69 billion), according to a report released Thursday by the Central Institute for Economic Management (CIEM).

The report, which deals with the economic impact of the draft excise tax law on sugary soft drinks, says the production scale of beverage companies would shrink after the tax increase. Both the added value and gross output of the beverage sector would decline. In particular, the added value would fall 0.772%, or VND5.65 trillion ($220.33 million).

Moreover, this excise tax would impact not only the beverage industry but also 24 other sectors via inter-industry relations. Its spillover effect would lead to a total decrease of 0.601% in the added value of the economy, equivalent to VND55.1 trillion ($2.18 billion).

In addition, their fixed assets would depreciate by 0.654% (VND7.8 trillion or $309.1 million), and their profits would decline by 0.561% (VND8.77 trillion). As a result, revenue from corporate income tax (direct tax) would drop by VND2.15 trillion.

The report’s calculations also indicate that the income of workers across the economy would decrease by 0.6%, equivalent to VND34.53 trillion ($1.37 billion).

In the first year of the tax imposition (2026), revenue from indirect taxes is estimated to increase by 0.853%. Yet, in the following years, the figure would go down 0.495% per year, corresponding to around VND4.98 trillion ($197.34 million) per year, and continue to decrease after that.

"In terms of economic impact, implementing a 10% excise tax on sugary drinks will lead to negative effects on the economy. The beverage industry is particularly vulnerable to shocks, including policy changes. Therefore, the drafting of documents and policies that may affect beverage businesses requires careful consideration," emphasized Dr. Nguyen Minh Thao, head of the CIEM’s business environment and competitiveness research department.

Based on its findings, the CIEM suggests not enforcing the excise tax on sugary drinks for three reasons.

Firstly, the beverage industry has been continuously affected by shocks from the Covid-19 pandemic and unpredictable fluctuations, which have diminished businesses’ resilience and eroded their competitiveness. Therefore, during this period, the government should focus on support policies to help them recover, revising and supplementing legal documents to facilitate their operations instead of enacting regulations that could negatively impact their production and business activities.

Secondly, alongside the revision of the Excise Tax Law, the draft amended Law on Value Added Tax (VAT) proposes raising the VAT on sugar and by-products in sugar production from the current 5% to 10%. The draft amended Law on Corporate Income Tax also mentions the elimination of tax incentives for items subject to the excise tax.

If these laws are passed as scheduled by the Ministry of Finance, beverage companies will face significant pressure from rising production costs due to increased sugar prices; and they will not benefit from tax incentives when sugary drinks are subjected to the excise tax.

Thirdly, the analysis shows that a 10% excise tax on sugary beverages would negatively impact the economy in many aspects, including production scale, output, added value, profits, income, employment and even state budget revenue.

After listening to the CIEM report, Tran Thi Nhi Ha, deputy head of the National Assembly's Ombudsman Committee, said that applying the excise tax on sugary drinks would significantly affect consumers and businesses.

Therefore, a scientific basis and more convincing evidence are needed before a decision is taken on imposing it, said Ha .

"We need to develop policies that align with the economic conditions of Vietnam and prioritize public health. Currently, there are controversial opinions on this issue. Therefore, the drafting committee needs to conduct further specific research,” she added.