Controversy bubbles over proposed sugary drink tax

Groups have taken issue with the MoF positioning the tax as a public health measure

In August 2017, the Ministry of Finance (MoF) proposed the levy of a special consumption tax (SCT) on sugary drinks under a draft law amending the five tax laws: one with a tax rate of 10 per cent, and the other with a tax rate of 20 per cent that would take effect in 2019.

This is not the first time that the MoF has suggested a sugar tax. A proposal was submitted in February 2014 for a sugar tax but was withdrawn in August 2014.

Contentious reasoning

According to the MoF, the imposition of the tax aims to regulate the consumption of sugar-based beverages according to international practices, due to the harmful effects of soft drinks on public health.

The ministry pointed to a World Health Organization report that shows the proportion of overweight and obese adults in Vietnam now stands at 25 per cent of the population. Obesity rates among children under five years old are also increasing rapidly, and this puts them at future risk of cardiovascular disease, hypertension, strokes, atherosclerosis, and other ailments.

The MoF claimed that such a tax would boost the prices of unhealthy drinks and reduce the number of people who consume large quantities of them.

Corporate representatives and associations, however, argued that the MoF’s reasons for applying excise taxes to combat obesity, diabetes, and cardiovascular diseases are not sufficiently persuasive, citing the example of soft drinks with low sugar levels, enriched with vitamin and minerals, also being subject to the new tax.

According to Nguyen Hong Huy of the Nutritional Foods Group under the European Chamber of Commerce (EuroCham) in Vietnam, numerous international studies conclude that obesity can have many causes like more calories consumed than burnt, unbalanced and high-fat diets, and regular fast food consumption – showing that sugar-sweetened beverage consumption is not the only factor related to obesity.

Nguyen Tien Vy, deputy chairman of the Vietnam Beer Alcohol and Beverage Association (VBA), raised the question, “Are sugary drinks the main cause of diabetes and obesity? Will the levy of this tax help lower diabetes and obesity rates?”

At a tax policy roundtable held by the US-ASEAN Business Council in Hanoi on December 13, Wayne Banford, senior advisor for the International Tax and Investment Centre (ITIC), shared international best practices on tax policy as Vietnam prepares to overhaul its tax system.

“When it comes to the imposition of SCTs on sugar-based drinks in 158 countries in the world, there is no country using tax policies like SCTs to address public health concerns,” he said.

Several developed countries with high obesity levels do not impose SCTs to limit the consumption of sugar-based beverages, including China, South Korea, Japan, Australia, and New Zealand. This is mainly because the link between health risks and the impact of the tax has not been proven. In fact, several countries have abolished a similar tax on sugary drinks, including Argentina, Denmark, Indonesia, South Africa, and Pakistan.

Is that the main cause?

Vu Tu Thanh from the US-ASEAN Business Council wonders how the MoF came to the conclusion that soft drinks are a leading cause of obesity. He is concerned about whether the levy on soft drinks will actually contribute to decreasing obesity and diabetes rates.

“If policymakers are concerned about public health issues like obesity and diabetes, they should apply excise taxes on all types of food and beverages, many of which might be the causes of these health problems,” he said.

Adam Sitkoff, executive director of the American Chamber of Commerce (AmCham) in Hanoi, said that AmCham supports tax regimes that are fair and do not discriminate against certain industries or groups of taxpayers. This is also an important matter when the country finds ways to attract high-quality investment and promote private sector development.

According to VBA’s recommendations to the MoF, the ministry should provide scientific evidence to prove that sugary drink consumption is a main cause of diabetes and obesity. If the tax on sugary drinks is passed, will it help lower diabetes and obesity levels?

The association also recommends the ministry clarify the definition of ‘soft drinks’ in the draft law in order to avoid misunderstandings. The proposed tax employs a general definition which does not differentiate between drinks containing added sugar and those with a mixture of added sugar and artificial sweeteners. There is also no link between the risk of obesity and sugar-free drinks, as described by the ministry.

Tax tinkerers

The ministry should consider adjusting its taxation plan for added-sugar drinks based on their sugar levels, the plan’s critics say, instead of a flat SCT of 10 or 20 per cent for all sugary drinks as proposed.

Following this logic, beverages with higher levels of sugar should be applied higher tax rates than those with lower levels. Also, the alternative plan’s boosters say, beverages with sugar content under a certain level should be exempt from taxation. This tax regime is not only fair, but it would also encourage beverage manufacturers to reduce sugar levels in their products, which will ultimately improve public health.

Most countries in the world which have applied the sugary soft drink tax have linked its rate to drinks’ sugar content, like Thailand, France, Mexico, Hungary, Norway, and the UK.

The country also will need a clear timeline for the implementation of the SCT on sugary drinks if manufacturers are to adjust their production smoothly. In the UK, the government set 13 months between the introduction of the sugary soft drink tax in April 2017 and its official implementation in May 2018.

In Thailand, the SCT levied on sugary drinks came into force in September 2017 but there will be no major changes till September 2019. In addition, the government has developed a seven-year roadmap for implementation so that manufacturers can have time to prepare for the change.

Under the plan, it is only two months until the draft law amending the five tax laws passed by the National Assembly till it comes into force. This timeline, critics argue, is far too short for beverage companies to adapt their businesses.