Finance ministry keeps proposing special consumption tax on sugary drinks

Vietnam’s Ministry of Finance has retained its proposal on imposing the special consumption tax (SCT) on sugary drinks, excluding milk and nutritional drinks, in the latest draft amended SCT Law.

The ministry also changed the term "sugared drinks" to "sugary beverages according to Vietnamese standard" after acquiring comments from businesses.

Under Vietnamese standard TCVN 12828:2019, sugary beverages include carbonated drinks, energy drinks, electrolyte drinks, energy and sports drinks, Alkaline ionized drinks and drinks containing tea, coffee and fruit juices.

Milk and dairy products are not classified as those under this standard. They are nutritional drinks and thus not subject to this tax, it noted.

In addition, liquid foods for nutritional purposes, natural mineral water and bottled water, vegetable and fruit juices and nectars, and cocoa products are also excluded from the taxable list.

The ministry stressed the need to impose the SCT on sugary beverages as many studies on the harmful effects of sugary beverages on human health have been recognized by domestic and international health organizations. Furthermore, the consumption of sugary beverages in Vietnam has been increasing.

Citing data from the World Health Organization (WHO) as showing that approximately 85 countries have implemented an SCT on sugary beverages, the ministry said some countries like Mexico and Thailand have reported positive results from the measure.

The ministry also said it will study SCT rates for sugary drinks based on sugar content after the draft law is approved by the National Assembly in order to encourage businesses to produce and import low-sugar drinks.

Earlier, several organizations like the Food and Foodstuff Association of Ho Chi Minh City, Vietnam Dairy Association, Vietnam Beer-Alcohol-Beverage Association (VBA), EuroCham and AmCham have suggested excluding sugary beverages from the taxable list, saying imposing the SCT on sugary drinks is not suitable.

EuroCham noted the term "sugared drinks" is a very broad and ambiguous concept, which can be understood as all sugary and drinkable products.

"The term not only overlaps with the group of "non-alcoholic beverages" in the draft, but also includes healthy products such as milk and nutritional products for kids, and nutritious goods for elderly people and pregnant women, among others," Gabor Fluit, chairman of EuroCham Vietnam, said during his presentation at Vietnam Business Forum (VBF) in March.

Fluit also argued that a June 2018 report by the Independent High-level Commission of the WHO on Non-Communicable Diseases (including obesity) only recommends a tax on alcohol and tobacco, while promoting a reasonable diet and exercise.

Gregory Testerman, chairman of AmCham Vietnam in HCMC, told the forum that international experience indicates that an SCT on sugary beverages has not proved effective in reducing obesity and diabetes, while it has caused significant social and economic impacts.

"Given the availability of many high-calorized foods in the market and the lack of physical activity among school-age children, sugar sweetened beverages are not the main cause of obesity," he said.

"Meanwhile, the tax would hurt the beverage industry, which has already suffered from the Covid-19 pandemic and is struggling to recover. In addition, other related sectors such as sugar and sugarcane, retail, packaging, and logistics could be hurt by the tax," Testerman added.

The beverage industry is a key part of Vietnam’s economy, with a revenue of VND200 trillion ($8.48 billion) and tax payment of VND60 trillion ($2.54 billion) yearly, said Nguyen Ngoc Bao, vice head of the National Assembly’s Economic Committee, at the VBA’s 2022 conference in February.