MOF plans to levy luxury tax on soft drinks

Sources said the imposition of 10 percent luxury tax on soft drinks is still in the latest version of the Special Consumption Tax (SCT) draft law. The compilers emphasized that taxation is necessary to prevent obesity, despite strong opposition from businesses.

The Ministry of Finance  (MOF) cited a report as saying that about 25 percent of Vietnamese adults are overweight or obese. The obesity rate for children under five years old increased from 0.6 percent in 2000 to 5.3 percent in 2015.

Those who are against the tentative tax argue that sugary drinks are now common , so consumers will still buy the products even if the tax is approved.

They also warned that a tax on sugar-containing soft drinks may lead to new products which can ‘dodge laws’ and satisfy customers’ demand, such as street drinks, restaurant-made drinks and dairy products.

In an effort to increase the revenue of the state budget, MOF is trying to collect tax from all possible sources. Soft drinks, with increasingly high consumption, promise to bring additional revenue to the budget.

However, analysts warn that the tax may not bring as much money as expected. 

A study by the Central Institute of Economic Management (CIEM) on the possible impact of the tax said that Vietnam’s GDP would decrease by 0.115  percent. The research institute predicted that income from production may decrease by 0.14 percent, the production surplus by 0.077 percent, and the labor force by 0.06-0.08 percent. 

The tax is expected to affect 9,000 small and medium enterprises in the fields of packaging production and transport.

“The revenue from tax collection may increase by only VND1.975 trillion, not VND4.55 trillion as estimated by the compilers,” CIEM said.

According to Chung Thanh Tien, a tax expert, MOF cannot anticipate all the negative impacts that the taxation would have on the economy.

Tien said he does not completely oppose the tax, but said there are many issues that need to be clarified. How will the selling prices of soft drinks be affected? How high will the revenue be from a luxury tax, and how much in corporate income tax and VAT would Vietnam lose?

The National Assembly needs to have this information to make decisions. Tien said the plan to expand tax subjects needs to be implemented in a cautious manner.

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