What a Sugar Tax Might Mean for Foreign Firms in Vietnam
The Ministry of Finance (MoF) in Vietnam has proposed the implementation of a sugar tax as a strategy to combat obesity and generate revenue. Although this proposal has been previously dismissed, the MoF remains determined, suggesting that it is not a question of whether Vietnam will introduce a sugar tax, but rather a matter of timing. Foreign beverage manufacturers should note the developments in this area and potential tax incidence.
The Ministry of Finance is proposing adding high-sugar content soft drinks to goods that attract Vietnam’s special consumption tax. This would put sugary sodas in a category with the likes of alcohol and tobacco products; the additional tax justified by the products’ adverse health impacts.
This proposal has been on the table for some time in Vietnam. A recurring idea, it has yet to be approved with a number of organizations coming out against it.
In 2018, for example, the American Chamber of Commerce in Vietnam (AmCham) strongly opposed the tax and disputed the efficacy of similar policies around the world. Notably, the United States has produced some of the world’s biggest name brands in sugary beverages. Coca-Cola and Pepsi, for example.
Also, there are several studies on a similar tax in Mexico that show an estimated reduction in consumption rates of sugary-beverages of up to 6 percent in the first year of implementation.
The European Chamber of Commerce (EuroCham) also raised concerns with earlier drafts of the law. It recommended specific modifications to enhance clarity, such as explicitly excluding non-sweetened drinks like milk of which it is a major producer.
Notably, these concerns were taken on board and in the latest iteration of the sugar tax bill, beverages like dairy, nectars, and nutritious drinks are excluded. But there is likely to be resistance to this version of the draft law as well.
Meanwhile, the World Health Organisation supports these initiatives. It has noted that in 2018, a quarter of Vietnam’s population was considered obese. Similar laws have already been passed by its regional peers (Thailand, the Philippines, Malaysia, Laos, Cambodia, and Myanmar), and it may only be a matter of time before a sugar tax is signed into Vietnamese law.
Foreign beverage manufacturers should be ready to adapt to potential changes. In this regard, let’s take a quick look at Vietnam’s soda market and the expected implications of a sugar tax.
Attitudes toward sugary drinks in Vietnam
This represents a sizable opportunity for foreign beverage makers.
Not only is Vietnam an attractive export market but for foreign firms looking to service the region more broadly, the Southeast Asian nation may be worth considering as a manufacturing base.
This would put them in the stead of other big-name brands. Heineken, for example, has a factory in Vung Tau and Coca-Cola has four plants in Vietnam with the most recent announced in October of last year in the Mekong Delta province of Long An.
However, while a sugar tax might have some impact on reducing demand, it is not expected to completely hinder growth. The sugar tax may even not feature as a primary concern for soda producers.
Vietnamese consumers are becoming increasingly health conscious and this shift in consumer preference could present a broader challenge or opportunity for beverage makers.
This, in fact, reflects a global trend. Healthier drinks are now among Coca-Cola’s product offerings in various markets, such as high-pressured juices, kombucha, probiotic drinks, and drinking vinegars. The US soda giant is moving with the times and is keen to attract younger consumers who are perceived to be more health-focused and sustainability-conscious. This has dictated its acquisitions strategy in recent years to ensure market relevance amid a more nutrition-driven food and beverage landscape.
A Cimigo study in 2022 found that two in three Vietnamese consumers were prepared to pay up to 10 percent more for natural or organic foods. This rising demand for healthy options is clearly visible in Vietnam’s supermarkets and grocery stores too, where healthy food and beverage products have exploded alongside official organic certifications.
Yet, the country is not a stranger to healthy consumption choices. Vietnamese cuisine has always been generally very healthy with an abundance of seafood and vegetables. In terms of beverages, unsweetened green tea has traditionally been the drink of choice – the myriad of health benefits it contains well documented.
Vietnam’s love of tea, however, has to some extent, gone through a sugary metamorphosis in recent years. One hugely popular franchise in Vietnam is Tiger Sugar, which boasts a range of sugary milk teas. This entire business, as the name suggests, has been built on the foundations of providing very sweet drinks and a franchise model that has seen the brand proliferate all over the country.
These types of beverages, however, are specialty items and are generally not consumed every day. This may be in part because of their high price relative to average incomes, but awareness of the impact of over-consumption among Vietnam’s consumer class should not be understated either.
Vietnam’s sugar tax for foreign firms
A pivot to healthier, low-sugar options may be one way to shore up a firm’s market share; another may be to adjust product offerings to better cater to Vietnamese tastes and local trends. All in all, an understanding of the Vietnamese market is key.
In this light, firms looking to manufacture beverages in Vietnam or to access Vietnam’s 100 million-strong consumer market should contact the business advisory experts at Dezan Shira and Associates.
Vietnam Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEAN, China, India, Indonesia, Russia & the Silk Road. For editorial matters please contact us here and for a complimentary subscription to our products, please click here.
Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at email@example.com or visit us at www.dezshira.com
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