Amendements to the Excise Tax Law under discussion

At a dialogue on “Ensuring Sustainable Benefits from Revising the Excise Tax Law for Alcoholic Beverages”, organized by Vietnam Economic Times (VET) / VnEconomy on July 31, experts in attendance unanimously agreed that updating the Law is both necessary and timely.

The primary goal of excise taxes is to restrict non-essential products or those harmful to human health and the environment. Medical research indicates that excessive consumption of alcoholic beverages, such as liquor and beer, poses certain health risks. The World Health Organization (WHO) also recommends that countries continue to strengthen measures to limit the consumption of such beverages.

However, experts advise that the drafting agency needs to further study consumer psychology and behavior and assess the specific impact of alcohol on public health to design policies that ensure long-term benefits for society.

Avoiding misguided practices

Dr. Dang Thuy Ha, Northern Regional Director at market researchers NielsenIQ Vietnam, highlighted that health and price are among the primary factors consumers consider when making purchasing decisions. Nearly five years after the Covid-19 pandemic, economic recovery remains incomplete, leading to lower incomes and, in turn, more cautious spending.

“In our latest Vietnam Shopper Trends report, over 60 per cent of consumers indicated they would alter their behavior in response to price changes,”  she said. “An increase in price might lead to lower consumption. However, determining the exact price increase needed to reduce consumption requires more detailed research.”

NielsenIQ Vietnam’s data shows that, besides price, consumption behavior is also affected by cultural and regional factors. “When we asked consumers in Ho Chi Minh City how their behavior changed during tough times, they said they would opt for slightly cheaper products while maintaining quantity,” Dr. Ha explained. “In contrast, consumers in Hanoi said they would reduce quantity but stick to the same brand. Even between these two cities, responses vary significantly.”

She emphasized, however, that alcohol consumption is strongly influenced by factors beyond price. “According to Maslow’s ‘Hierarchy of Needs’, alcohol consumption fits into various levels,”  she told the dialogue. “At the basic level, beer is a popular summer beverage. This explains the high summer consumption. At a social level, such beverages facilitate interaction and events. At higher levels, some individuals use expensive or branded alcohol to assert their status. Thus, consumption is an integral part of daily life.”

Professor Hoang Van Cuong, Member of the National Assembly’s Finance and Budget Committee and Vice Chairman of the Vietnam Economic Association, also believes that alcohol is a product with low price sensitivity.

“A product with high price sensitivity would see reduced consumption if taxes and prices rose,” he said. “Conversely, a product with low sensitivity may not experience a decline in consumption if higher taxes were imposed. In some cases, higher taxes may actually lead to unintended effects, such as shifts to cheaper, untaxed products or tax evasion.”

Experts suggested that, according to the “Laffer Curve” theory, reasonable tax increases with effective management can boost revenue. Excessively high taxes, however, may indeed result in revenue losses due to tax evasion and a shift to untaxed products, and make it more challenging for legitimate businesses to compete.

Differences in liquor and beer taxes

Experts at the dialogue pointed out a paradox: despite its significantly higher alcohol content, liquor is taxed at a lower rate than beer.

Under existing excise tax regulations, liquor with 20 per cent alcohol or more is taxed at 65 per cent, while liquor under 20 per cent is taxed at 35 per cent. All beer, meanwhile, is taxed at 65 per cent.

The typical alcohol content of domestic beer (excluding craft beer) ranges from 4 to 5 per cent, with low-alcohol or non-alcoholic beers generally containing between 0.05 and 1.2 per cent alcohol. Craft beers can reach as high as 12 per cent alcohol content, but there are regulatory gaps for this particular segment.

Experts argue that it is crucial to differentiate between the health impacts and economic contributions of liquor and beer to create effective policies. “Alcohol’s health effects vary by type and concentration, making it essential to avoid treating all alcohol as equal,” said Dr. Ha. “Additionally, tax policies should discourage the use of unregulated products that pose direct health risks.”

Ms. Dinh Thi Quynh Van, Chairwoman of PwC Vietnam, noted that Vietnam’s situation is unusual, with lower excise taxes on liquor compared to beer, despite the former’s much higher alcohol content, which by definition means it poses a more direct health hazard.

Liquor shares many characteristics with drugs, including a high potential for addiction and severe societal consequences, Dr. Nguyen Trung Nguyen, Director of the Poison Control Center at Hanoi’s Bach Mai Hospital, highlighted. Specifically, unregulated and craft liquor, which lack quality control, lead to significant health problems, fatalities, and higher public health costs than all other drugs combined.

Experts emphasize that the State budget faces substantial losses due to the inability to control the formal liquor market and the prevalence of illegal and craft liquor. Thus, international practice suggests taxing the harmful component - alcohol content - when designing tax policies for alcoholic beverages.

It is essential for Vietnam to conduct a thorough evaluation of the health impacts of each product, be it liquor or beer, and their effect on the production - trade - service value chain. Such a detailed assessment is crucial for stakeholders to develop effective policies that ensure sustainable benefits for society.