Vietnam excise tax on sugary drinks needs thorough consideration: experts

A 10% excise tax on sugary drinks should be thoroughly weighed as international practices show that tax is not an effective tool to change behavior and regulate consumption of sugary drinks, said experts on Thursday.

At a recent session of the National Assembly, Vietnam's legislature, the draft amended Excise Tax Law was tabled. According to the roadmap, the government will submit the bill to the National Assembly for comments for the second time at its next gathering in October. It is expected to be adopted by the legislative body at a session in May 2025.

In the draft, the Ministry of Finance proposed soft drinks with sugar content above 5g/100ml be subject to an excise tax of 10%. The aim is to limit the consumption of sugary beverages and prevent and reduce obesity, as recommended by the Ministry of Health, the World Health Organization, and the United Nations Children's Fund (UNICEP).

At a workshop held by the Vietnam Chamber of Commerce and Industry (VCCI) on Thursday, many experts said that there is not enough scientific basis to confirm that sugary drinks are the main cause of obesity.

Chu Thi Van Anh, vice chairwoman cum general secretary of the Vietnam Beer, Alcohol, and Beverage Association (VBA), said that the beverage consumption in Vietnam is not high compared to the rest of the world. Many countries have higher beverage consumption than Vietnam but do not impose this tax.

She cited a Ministry of Health report as saying that the consumption of sugary drinks in Vietnam in 2020 was about 34 liters per person per year. Meanwhile, the Union of European Soft Drinks Associations (UNESDA) reported that in 2019, the average beverage consumption per capita in Europe was 243.9 liters, much higher than that in Vietnam.

The countries with the highest per capita soft drink consumption in Europe are Germany (336.3 liters per year), Hungary (310.3 liters), and Belgium (272.4 liters). Among the 26 European countries with beverage consumption of over 100 liters per person per year, only 11 impose a special consumption tax on soft drinks. Although Germany has the highest soft drink consumption rate in Europe, it does not apply this tax.

In Asia, Japan and South Korea have annual per capita beverage consumption of 169.28 liters and 96.51 liters, respectively, but do not impose an excise tax. Japan boasts the lowest rate of obesity in the world, she added.

The VBA representative proposed not adding sugary drinks to the list subject to an excise tax because the goal for health protection is unclear.

“Sugary drinks are not the only products that provide sugar, and sugar is not the main cause of and obesity. Therefore, imposing the tax is not a feasible solution to protect people's health,” she argued.

In addition, Van Anh said, imposing an excise tax on sugary drinks may cause consumers to switch to using other types of sugary drinks that are manually produced and smuggled, which are very popular but not subject to a special consumption tax. This may not only make the policy’s goals unachievable but also negatively affect the development of the beverage industry and create conditions for unofficial, handcrafted, or smuggled products to thrive.

Sharing the same view, Nguyen Viet Ha, vice president of the American Chamber of Commerce in Hanoi (AmCham Hanoi), said that AmCham's international experience shows that imposing an excise tax on sugary drinks may reduce consumption but does not lead to a reduction in the rates of obesity or diabetes.

Citing international practices, she said India began imposing a tax on sugary drinks in 2017, but the rate of obesity is on the rise.

Denmark, Norway and some U.S. states decided to cancel the application of a special consumption tax on sugary drinks due to its ineffectiveness, she added.

Nguyen Van Phung, former head of the Large Enterprise Tax Department under the General Department of Taxation, doubted the application of an excise tax on sugary drinks will achieve its goals of changing behavior and regulating consumption.

Citing Decision Lab's 2018 market research on soft drink consumption in Vietnam, if an excise tax of 10% is imposed, Phung stated that 38% of consumers with high incomes (over VND14 million or $550 per month) would still consume soft drinks as usual, while 49% would switch to manually produced sugary drinks sold at markets, sidewalks, and street stalls.

"Imposing a 10% tax on sugary soft drinks would not change consumer behavior, and instead make them switch from taxable products to street products that are not affected by a special consumption tax. These street drinks pose potential risks in terms of food hygiene and safety," he commented.