National Assembly last month approved plans to hike taxes on alcohol from 65% to 90% by 2031, a major step in the government’s efforts to curb harmful consumption habits.
The tax hike comes amid rising concerns within the ruling Communist Party about in Vietnam, with the authorities still struggling to enforce a zero-tolerance policy on drink-driving that was brought in in 2019.
But the move is facing opposition from the alcohol industry. Even though Vietnam is Southeast Asia’s second-largest beer market, according to a report by the consultancy group KPMG, .
Higher taxes to boost public health
Under the initial plans, taxes would have hit 80% in 2026 and rise to 100% by 2030. But it is thought that the authorities watered down the levies after lobbying from the alcohol industry.
The Special Consumption Tax (SCT) on alcohol and beer will now rise from the current 65% to 70% by 2027 and ultimately to 90% by 2031. Lawmakers also approved a new tax of 8% on sugary drinks exceeding 5g/100ml of sugar that will take effect in 2027 and rise to 10% in 2028.
Last year, alcohol industry bodies warned that the gradual tax rate hike could increase retail prices by at least 10% annually.
Deputy Prime Minister Le Thanh Long, who has steered this law through parliament, has said that the higher taxes are necessary to address public health concerns.
Alcohol consumption rates have steadily increased, from 2.9 liters of alcohol per person in 2005 to 7.9 liters in 2019, according to a report last year from the Department of Preventive Medicine under the Ministry of Health.
It also found that alcohol is the second-highest cause of death in Vietnam.
Angela Pratt, representative in Vietnam, said in a statement that the global health body is “very pleased” that Vietnamese lawmakers have followed a “win-win” policy “of reducing the consumption of tobacco, alcohol and sugary drinks — and therefore reducing harm and health costs for decades to come — while generating additional revenue for key Government priorities.”
“Reducing consumption of these unhealthy products will improve population health, and in doing so, workforce participation and productivity,” she added.
Strained state coffers
In 2019, the government introduced a zero-tolerance policy on drink-driving as part of its efforts to significantly improve public , as the country prepares for unprecedented shifts that will require far more state spending on health care.
Last month, To Lam, the Communist Party chief, announced that the government is progressing with its policy of providing free hospital care to every citizen. It aims to provide free coverage to 90% of the population by 2030.
Under the new Law on Health Insurance, which is expected to be passed this month, the government aims to eventually introduce universal health insurance coverage and reduce out-of-pocket expenditures to around 20% of all health care costs within a decade.
Currently, out-of-pocket spending accounts for 45% of all health expenditure. It is not uncommon for a household to become indebted in order to cover the health costs of a family member.
However, the Communist Party’s health insurance ambitions won’t be cheap, especially considering the profound demographic changes that the country will undergo in the coming decades.
, and the state is concerned that the working-age population will shrink as the percentage of retirees grows, which will put unprecedented strain on the government’s coffers.
“Vietnam’s alcohol is still among the cheapest in the region, so the government sees higher taxes as a logical next step after the zero-tolerance drink-driving law,” Khac Giang Nguyen, a visiting fellow at the ISEAS – Yusof Ishak Institute in Singapore, told DW.
Last month, the Ministry of Health also proposed establishing a Disease Prevention Fund within the draft Law on Disease Prevention, which would be supported by state funds, as well as potential additional levies on unhealthy foods and drinks, raising further alarm bells in the alcohol industry.
Alcohol industry raises concerns
“We are disappointed by the recent hikes to the Special Consumption Tax and are equally concerned about the cumulative impact of further tax increases, particularly in light of the newly proposed health levy under the draft Disease Prevention Law,” Tim Wallwork, chair of the Asia Pacific International Spirits and Wines Alliance, told DW.
“We call on the government to avoid layering additional tax responsibilities on top of the SCT, so that compliant businesses, including those with local manufacturing and long-term investments, have the space to adapt, recover and grow amid ongoing economic challenges and uncertainty,” Wallwork added.
According to the Vietnam Beer Alcohol Beverage Association, year-on-year sales fell by 23% in 2023. They declined by 7% the previous year.
Declining sales were one reason why Heineken shut down operations at its Quang Nam brewery, one of six it operates in the country, in June 2024.
Wallwork told DW that around 70% of alcohol consumption in Vietnam goes unrecorded, with most people still drinking unlicensed and potentially deadly alcohol.
Southeast Asia’s unregulated alcohol sector after six backpackers died after drinking shots laced with methanol in Laos’ tourist hub, Vang Vieng.
“Further tax increases risk pushing consumers toward these unregulated and potentially harmful products, undermining public health and enforcement efforts,” said Wallwork.
However, the government has clearly decided that the health of the public trumps the health of the alcohol industry, and is well aware that enforcing preventative measures will be cheaper in the long run.
“Many of Vietnam’s major alcohol producers have been privatized, so the state no longer profits directly from higher sales. That makes it easier for the government to act without worrying about losing revenue,” said Giang of the ISEAS – Yusof Ishak Institute.
Even though beer sales are dipping, “higher taxes could make up the difference in volume. So, this move won’t necessarily hurt the budget, but it does send a clear political signal about where the Communist Party stands,” he added.
Edited by: Karl Sexton
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