Economists warn Vietnam against tax on carbonated drinks

By Huong Giang , Thanh Nien News

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After the Ministry of Finance recently proposed an excise tax on carbonated beverages, representatives from the business community warned that the move could do more harm than good.
A draft amendment to the Law on Special Consumption Tax set a 10 percent tax on carbonated soft drinks due to the public health risks they pose, like obesity and diabetes.
The revised law will take effect on July 1 next year, if approved.
However, Sesto Vecchi, managing director of Russin & Vecchi International Legal Counselors and a representative of the American Chamber of Commerce in Vietnam, told Thanh Nien that no other country imposes a tax on drinks just because they are carbonated.
If Vietnam applies the tax, it will likely face accusations that it discriminates against foreign investors, he said.
Vietnam currently has 134 soft drink producers, but foreign businesses dominate the market for carbonated beverages, news website Thoi Bao Kinh Te Sai Gon (Saigon Times) recently reported.
Dau Anh Tuan, chief of the Vietnam Chamber of Commerce and Industry’s legal department, said the excise tax is only reasonable when it is backed by detailed and complete analysis on the harms posed by each drink.

Customers buy coke at a supermarket. Photo credit: TBKTSG
Speaking to Thanh Nien, Nguyen Thi Thu Nam with the Health Strategy and Policy Institute said her agency’s studies on carbonated beverages showed that it is incorrect to say that carbon dioxide has a negative impact on users.
She said carbon dioxide does not have “considerable” effects on tooth enamel and "no effect whatsoever" on bone health, adding that they found no evidence that links carbon dioxide to any illness.
The tax would not pertain and makes no mention of the sugar content in the drinks.
No conclusive evidence exists about the effects of other drink additives though he noted that drinks which contain phosphoric acid and caffeine have certain effects on the consumer
The expert said focused, thorough studies on the individual additives are needed before jumping to wholesale conclusions about their effects on consumer health, Nam said.
In the meantime, Nguyen Dinh Chuc with the Central Institute for Economic Management said the tax, if applied, will increase carbonated drink prices, which will result in a slump in demand.
He estimated that the soft drink industry in Vietnam would suffer US$40.5 million in losses and the whole economy would lose $12.1 million.
Chuc advised the government to conduct a thorough study on the tax’s economic effects before applying it.
News website VnEconomy recently quoted a survey released by Danish-owned market research agency Epinion in April as saying that 73 percent of more than 600 interviewed people in Hanoi and Ho Chi Minh City said they will switch to other drinks, if the tax were to increase the price of carbonated drinks.
According to the finance ministry, last year Vietnamese consumers drank 925 million liters of carbonated drinks which were priced at VND11,987 (56 cents) per liter on average.
This means businesses would pay around VND1,200 per liter in consumption tax, which would not greatly affect them, the ministry said.
If the proposal is approved, it would bring the government some VND1.5 trillion ($71.1 million) worth of revenue in 2016.

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