WB suggests excise tax against beer in Vietnam higher than ministry’s plan

Vietnam’s Ministry of Finance is drafting amendments to the Law on Excise Tax, with a target to increase such taxes against beer to 90% (plan 1) or 100% (plan 2) in 2030 from the current rate of 65%.

Commenting on the draft law, the World Bank said the change is “significant” but it is not “impactful enough” to reduce the “affordability” of beer, while acknowledging that higher taxes would help ensure healthcare goals amid Vietnamese consumers’ stronger and stronger ability to pay.

The WB pointed out that prices of beer in Vietnam have become “more affordable” by 71% recently, regardless of excise taxes going up from 45% to 65% in 2010-2018. The bank's simulation calculated the 90% and 100% tax rates in five years can reduce beer sales by 3.9% and 5.4%, respectively.

As a result, the WB proposed excise taxes even higher than the ministry’s under-construction plan. For ad valorem tax (proportional to the value of the underlying asset), the WB suggested 155% tax rates. For specific tax (constant figure), it recommended a figure of VND16,500 ($0.66). Such figures can prevent beer from becoming an “affordable” product in time.

The institution estimates the specific tax option can cut beer sales by 4.7-6.2%, while the hybrid tax (mixed formula between ad valorem tax and specific tax) can lead to a reduction of 4.3-5.9%.

In reply, the finance ministry rejected the WB’s recommendation, saying the specific tax option is not suitable for Vietnam at the moment. The tax changes must meet Vietnam’s strategy of tax reform until 2030, the country’s commitments to the World Trade Organization (WTO), and the characteristics of the domestic market, the ministry clarified.

In its latest draft on excise tax, Vietnam’s Ministry of Finance has not taken into account Heineken’s suggestion for a hybrid tax calculation for beer.

Heineken was the only premium beer brand to make such a proposal, the ministry noted. Many businesses and agencies opposed the suggestion and wanted continuity of ad valorem tax calculation for excise duties.

The ministry clarified that hybrid tax calculation would put heavy pressure on affordable products, prompting a price hike that’s “much more” than a hike in premium product prices.