Higher tax rates for alcoholic beverages are likely to raise concern among experts

Dr. Chu Van Lam, Editor-in-Chief of Vietnam Economic Times (VET) / VnEconomy / Tap chi Kinh te Viet Nam

Vietnam Economic Times (VET) / VnEconomy / Tap chi Kinh te Viet Nam serves as the voice of the Vietnam Economic Association, bringing together many macro-economic and sectoral researchers and linking with experts from various domestic and international organizations. Along with our journalistic duties, we organize discussions and forums to gather candid, passionate, and responsible insights from experts, reflecting their ongoing contributions to development.

Ensuring or balancing stakeholder interests in amending the special consumption tax (SCT) on alcoholic beverages has been a topic of discussion in the past. At this dialogue, on “Ensuring Sustainable Benefits from Revising the Excise Tax Law for Alcoholic Beverages”, the emphasis was on the need to ensure sustainable benefits from the draft amendments to the Law and its effectiveness once implemented. We look forward to detailed analyses and evaluations from reputable experts.

 

Professor Hoang Van Cuong, Deputy to the 15^th  National Assembly, Member of the Finance and Budget Committee of the National Assembly

Implementing an increase to the special consumption tax rate on alcoholic beverages is essential to address overuse. Such an approach is recommended globally, with higher taxes on liquor due to its greater harm. However, simply increasing the tax may not lead to behavioral changes. The key is to use the tax as a signal to society that policies aim to discourage alcohol consumption. This approach helps shift consumer attitudes in the desired direction.

Changing consumer behavior is a gradual process. There are two methods for tax policy to influence this change. The first is a gradual increase, as proposed by the Ministry of Finance, with small annual rises. Similar to antibiotics losing effectiveness with overuse, a sudden 10 per cent increase in 2026 would cause shock and negatively affect public perception and communication. Smaller annual increases of 5 per cent, meanwhile, may be too small to make a difference.

The second method involves an initial 10 per cent increase, followed by similar increments every few years. This approach creates ongoing waves of communication and helps shift consumer attitudes over time. Research is needed to determine which method is more effective in changing behavior.

A well-thought-out plan is crucial. Expecting rapid changes in consumer behavior from tax increases alone may be unrealistic.

 

Ms. Dinh Thi Quynh Van, Chairwoman of PwC Vietnam

Historically, Vietnam has increased taxes on alcoholic beverages every 3-4 years to help the market, producers, and consumers adjust gradually. While some argue that the special consumption tax is not keeping pace with the Consumer Price Index (CPI), this isn’t entirely accurate. Our tax system is relative, meaning it is tied to product prices and adjusts somewhat relative to price increases and the CPI. The annual increase is generally quite high.

Furthermore, as Vietnam’s average incomes have risen significantly, the consumption of liquor and beer has increased accordingly. However, as consumption reaches saturation point, it will stabilize, aligning more closely with developed countries, where alcohol use does not continually increase with rising incomes.

Regarding tax rates, while there is a trend to raise taxes on alcoholic beverages, continuous, sharp increases, as proposed, are rare. Most countries adopt a gradual approach, with increases occurring every 2-3 years on a set schedule. The main goal is to reduce the health impacts of alcoholic beverages. Studies show that alcohol affects human health, prompting many countries to tax beverages based on alcohol content to encourage moderation. Additionally, there is a trend towards lowering alcohol content in beverages, with options like 0 per cent beer available. Beer with over 5 per cent alcohol could be taxed differently from those below 5 per cent, which is another potential approach.

 

Professor Vu Sy Cuong, Head of the Financial Policy Analysis Department, Faculty of Public Finance, Academy of Finance

I want to discuss the balance between costs and benefits in designing and implementing tax policies. Costs involve what businesses, consumers, and the community must pay, while benefits reflect the societal gains.

When benefits outweigh costs, policy adjustments are justified. However, if costs surpass benefits, resulting in increased business failures, reduced tax revenue, and persistent illegal alcohol consumption, the policy is ineffective. Thus, it is crucial for the policy-making body, industry associations, and stakeholders to conduct a comprehensive assessment to effectively persuade all parties involved.

Higher taxes can often lead to issues like tax evasion, smuggling, and counterfeit goods. Ensuring that tax rates do not drive consumers towards illegal or counterfeit products is a significant challenge. Moreover, optimizing tax calculation methods for effective management needs careful thought. The current relative tax calculations must ensure accurate ex-factory pricing to avoid revenue losses. Does the Ministry of Finance (MoF) have sufficient staff and resources to verify pricing accuracy across all production facilities?

Additionally, businesses affected by the tax increase need to provide evidence through industry associations, including quantifiable impacts. For example, a detailed 300-page report on the Canadian seafood industry’s losses due to a fishing ban was produced by their association. However, the Vietnam Alcohol - Beer - Beverage Association (VBA) has yet to present any quantitative data on the draft’s impact on their industry. Vietnam faces a challenge from incomplete data, and associations lack the necessary information to present to stakeholders. Without this data, it is challenging to convince lawmakers and relevant parties.

While the MoF has substantial evidence about high alcohol consumption in Vietnam and its health impacts, the associations’ evidence on the economic effects of taxation, including on jobs and worker incomes, is insufficient. This lack of concrete data means that when the MoF requests specific evidence, none is available. Although special consumption tax rates are inevitable, we currently lack sufficient data to evaluate how these taxes will affect businesses and whether they will compensate for changes in consumer behavior.

 

Ms. Chu Thi Van Anh, Vice Chairwoman and Secretary General of the Vietnam Alcohol - Beer - Beverage Association (VBA)

The proposed increase to the special consumption tax (SCT) on alcoholic beverages in the draft amendment to the Law on Excise Tax represents the most significant “shock” to SCT rates in history. The rate is set to progressively rise starting in 2026, potentially reaching 100 per cent by 2030. Businesses in the sector cannot fully evaluate the severe impact of this proposal due to the need for time, comprehensive statistical data, scientific impact models, and considerations like elasticity, consumer reactions, and the shift to alternative products.

We urge the drafting agency to address three main issues.

Firstly, the basis for the proposal is unclear. The Ministry of Finance has only indicated that the increased tax rate is intended to raise the retail price rise by at least 10 per cent in the first year and about 2-3 per cent in subsequent years, as recommended by the World Health Organization (WHO). This expectation is surprising to businesses, which usually only raise prices by 0.5 per cent to 1.5 per cent, even during peak periods and holidays.

Secondly, there is a lack of a thorough impact assessment report that evaluates both direct and indirect effects, including effectiveness in terms of health protection, budget implications, social welfare, and labor.

Thirdly, a major concern is that high taxes may lead consumers to opt for illegal, cheaper, lower-quality, or counterfeit products. This could create a significant gap between legal and illegal products, posing health risks, increasing costs for market and customs authorities in combating smuggling, and adversely affecting legitimate businesses.

We hope the drafting agency will review international experience, particularly lessons from neighboring countries with similar conditions to Vietnam, such as China, Malaysia, and Thailand, to avoid business shocks.

Tax shocks occur when sudden changes in tax policy cause significant financial impacts. Such shocks can result from unexpected tax increases, reductions in tax exemptions, or changes in tax regulations. For instance, Malaysia faced a tax shock in 2014-2015 when it continually raised SCT rates. This abrupt and steep tax hike did not achieve its intended goal but instead created a negative domino effect, reducing government revenue, shutting down legal factories, and causing job losses.

Policy proposals should be based on solid scientific evidence and comprehensive impact assessments, covering both direct and indirect effects, including impacts on consumers, investment climate, labor, and business competitiveness, while aligning with Vietnam’s specific context. In addition to raising taxes, regulatory agencies should enforce strict measures against smuggling, counterfeit goods, and products of unclear origin, to protect legitimate businesses, prevent revenue losses