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Vietnam Proposes Major Alcohol Tax Hike to Curb Drinking

The Vietnamese government has recently put forward a proposal to substantially increase alcohol taxes, with a particular focus on doubling the excise tax on wine by 2030.

This move, outlined in a draft regulation by the Ministry of Finance, forms part of a broader strategy aimed at curbing excessive alcohol consumption in the country.

Given the growing concerns about the affordability of alcohol in Vietnam, the new tax structure is set to be implemented in phases, potentially reshaping the country’s emerging wine market.

Vietnam’s Alcohol Tax Landscape: Current and Proposed Changes

Vietnam currently imposes a tiered excise tax on alcoholic beverages: 65% on those with an alcohol content of 20% or more, 35% on beverages with less than 20% alcohol (including wine), and 65% on beer. The draft regulation proposes significant increases, raising these rates to 80%, 50%, and 80% respectively by 2026. By 2030, the rates would climb further to 100%, 70%, and 100%.

For the wine industry specifically, the excise tax would increase to 50% by 2026, eventually reaching 70% by 2030. This hike is expected to push retail prices higher, which could affect both local consumption and the market dynamics for imported wines.

Public Health Rationale and Government Revenue

The proposed tax hikes are primarily driven by public health concerns. The Ministry of Finance emphasized the necessity of higher taxation to reduce alcohol consumption, which has been rising in tandem with Vietnam’s economic growth. By making alcohol more expensive, the government aims to curb excessive drinking, particularly among the younger population.

The financial implications of this proposal are also significant. The Ministry estimates that the increased taxes could generate an additional VND 24 trillion (approximately US$ 94 million) in revenue in the short term. This influx of funds could potentially be redirected to public health initiatives or other social programs, further justifying the tax increase from a policy perspective.

Economic Growth and the Expanding Wine Market

Vietnam’s rapidly expanding economy has made it an attractive market for wine producers. The country’s GDP grew by 6.42% in the first half of 2024, underscoring its robust economic performance. However, with a per capita GDP of US$ 4,346.77, Vietnam still has significant room for further economic development. The influx of foreign investment and rising consumer spending have led to a surge in wine imports, making the market increasingly competitive.

In 2022, Vietnam’s wine imports grew by 38.24%, and this trend accelerated in 2023, with a growth rate of 53.52%. Imported wines now dominate the market, accounting for 75% of total sales. Leading wine-exporting countries like Chile, France, and Australia have benefitted from this boom. For instance, Australia saw its wine exports to Vietnam jump by 103% in 2022, driven by producers seeking new markets following punitive tariffs from China.

Challenges for Wine Importers and Potential Market Impact

Despite the growth in wine imports, the sector faces significant challenges due to Vietnam’s existing tax structure. Importers currently contend with a 50% import duty on the CIF price, a 25% Special Consumption Tax (SCT), and a 10% Value Added Tax (VAT), all of which must be paid upfront. These taxes collectively make importing wine into Vietnam more expensive than in many other markets, such as China, where total wine taxes are about 43%.

The proposed tax increases could further exacerbate these challenges, potentially deterring new entrants and reducing the competitiveness of imported wines. This is particularly concerning for wine producers from countries with which Vietnam has signed free trade agreements, such as the European Union, Australia, and New Zealand. These agreements, signed between 2018 and 2019, have led to the gradual elimination of tariffs. However, the proposed 70% excise tax on wine could offset the benefits of these agreements, making Vietnam a less attractive market despite its growth potential.

Conclusion: A Delicate Balance

The Vietnamese government’s proposal to double the excise tax on wine and increase taxes on other alcoholic beverages is a bold move aimed at addressing public health concerns. However, the implications for the wine market are complex. While the tax hikes may succeed in reducing alcohol consumption, they could also dampen the growth of an emerging market that has attracted significant foreign interest.

The challenge for Vietnam will be to balance these competing priorities: promoting public health while fostering a favorable environment for economic growth and international trade. As the government navigates these complexities, the proposed tax increases will likely continue to spark debate among policymakers, industry stakeholders, and consumers alike.

Source: Vino-Joy

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