Proposal to impose 10% special consumption tax on soft drinks

In the submission to the Government on the draft Law on Special Consumption Tax, the Ministry of Finance still maintains the view that sugary drinks are subject to special consumption tax.

Sweetened soft drinks according to Vietnamese Standards (TCVN), including carbonated soft drinks, containing tea, coffee, fruit juice; energy drinks, electrolyte drinks, sports drinks...

Milk and dairy products are not subject to this tax because they are not beverages according to TCVN and are health nutrition products. Natural mineral water and bottled water; vegetable juice and nectar (molasses) of vegetables, fruits and cocoa products are also not subject to tax.

The new point compared to previous drafts is that the Ministry of Finance proposed to impose a 10% tax on sugary soft drinks. The option of imposing a 20% tax was also mentioned by the authorities, but they said that this tax rate would cause more reactions from the public and businesses in the context of them needing to focus on recovering production and business.

According to the management agency, the price of soft drinks may increase by 10% when subject to the corresponding special consumption tax. However, consumption will decrease, consumers will switch to alternative products or less sugary, healthier ones.

"Increasing taxes and prices will contribute to reducing obesity, diabetes and the incidence of other non-communicable diseases in the future, especially among the younger generation. From there, the health system and hospitals will also be less pressured and overloaded," the Ministry of Finance argued.

The Ministry of Finance estimates that the tax will generate an additional VND2,400 billion a year, based on the assumption that 80% of the products subject to the tax will be taxed and that consumption will decrease by 20% due to price increases. However, the revenue will only increase in the first year of taxing this item. In subsequent years, it will gradually decrease as the tax causes consumers to consume less and manufacturers to change their formulas and produce products with sugar content below the tax threshold.

In 2020, revenue from soft drinks regardless of sugar content was about 40,000 billion VND.

Authorities admit that imposing the tax will initially reduce output, revenue, and profits of businesses producing and importing these products. However, this will encourage businesses to produce products that are better for consumers’ health.

Stating their previous views, many associations and businesses opposed the imposition of special consumption tax on sugary drinks. According to them, it does not help solve the problem of overweight and obesity, but creates a discriminatory tax policy. Not to mention, this policy will cause unwanted consequences for other related industries, such as sugar cane, retail, and packaging.

Regarding this issue, the Ministry of Finance cited data from the National Institute of Nutrition showing that average soft drink consumption per capita also increased by nearly one and a half times after 7 years, reaching 70.56 liters per person in 2020.

At the same time, the rate of overweight and obesity is alarming among Vietnamese children aged 5-19. This rate has more than doubled in 10 years, reaching 19% in 2020, higher than the average rate of Southeast Asia (17.3%) and low- and middle-income countries in the region.

The Ministry of Finance asserted that taxing sugary drinks has become a common trend. Currently, about 85 countries impose this tax, an increase of nearly 6 times compared to 10 years ago.

In addition, in this draft, the management agency also describes hybrid gasoline-electric cars as cars that are charged with a charging system. This type of car is subject to a tax rate of 70% of the same type of gasoline or diesel. That is, the tax rate is about 24.5-105%, depending on the vehicle's capacity.

This is a plug-in hybrid vehicle that can run on electricity alone, can be charged separately like an electric vehicle, and still has a gasoline engine when the battery runs out. The amount of emissions into the environment of this type is much lower than that of other conventional cars. The clear distinction, according to the Ministry of Finance, avoids confusion with basic hybrid vehicles, which mainly run on gasoline engines under normal conditions.

For cars running on natural gas, authorities also propose to impose a tax rate similar to that of plug-in hybrids, ranging from 24.5-105% depending on the vehicle's capacity.