Vietnam's Law on the Special Consumption Tax ("LSCT") has undergone several amendments since it was promulgated in 1998. This law plays a significant role in the development of Vietnam and contributes hugely to the state budget. Nevertheless, with shifts in consumption habits, lifestyles, and innovations in social life, the LSCT has revealed certain shortcomings. Recently, the Ministry of Finance has introduced the draft of new LSCT (the "Draft") to replace the current LSCT. It was presented to the National Assembly in October 2024 and will be passed in 2025.
The addition of goods and services subject to special consumption tax
The LSCT Draft introduces additional categories of goods and services newly subject to the special consumption tax. Notably, the Ministry of Finance proposes a tax on beverages containing sugar levels of 5mg per 100ml or higher. The tax has a health and social, as well as a budgetary purpose. It is intended to curb the consumption of sugary drinks, which are considered unhealthy and are seen to negatively impact public health, particularly among individuals aged 5 to 19.
Furthermore, the Draft adds "rolling tobacco, Vietnamese pipe tobacco, and other forms of tobacco" as taxable items, thereby covering all types of tobacco products. This is considered to be an innovative addition because, currently, the Ministry of Health and Ministry of Industry and Trade are still debating internally whether to ban completely the new generation of tobacco products, including electronic and heated cigarettes. In the wording of the Draft, in case new types of tobacco are officially permitted in the market, they will already be subject to the special consumption tax. The Draft also revises the definition of tobacco by directly referring to the definition in the Law on Tobacco Harm Prevention, ensuring consistency across legal frameworks.
The Draft also expands the definition of golf-related business by adding categories such as "golf course operations" and "electronic golf practice rooms." This clarification aims to ensure a more comprehensive application of the tax on various forms of golf activities.
New bases for calculating special consumption tax
The basis for tax calculation is crucial. The regulations must be clear and respect accounting principles, including pricing methods. Without clarity, disputes and arbitrary impositions can arise. The Draft expands on cases where absolute tax and mixed tax methods are applied. The addition of new taxable bases, according to the Ministry of Finance, is to minimize the impact of unhealthy products on young people and people with low income. The targets are unhealthy products such as tobacco, sugary drinks, and alcohol. In particular, the Draft presents 3 bases to calculate special consumption tax:
(1) the percentage-based method: the special consumption tax payable is the taxable price multiplied by the special consumption tax rate.
(2) the absolute tax method: the special consumption tax payable is the quantity of taxable goods and services multiplied by the absolute tax rate. So, for example, the Draft proposes an absolute tax rate of VND 2,000 per cigarette pack. This means that for 100 cigarette packs, the special consumption tax will be VND 200,000.
(3) using the mixed tax method: a combination of the two methods above.
The rationale behind the application of absolute tax and mixed tax methods, as explained by the Ministry of Finance, is to encourage manufacturers to invest in enhancing product quality, value, and price, thus restricting access to harmful goods, particularly for young people and those with lower incomes, while also reducing the negative effects associated with low-quality products.
Tax rate of the new special consumption tax
The current LSCT sets tax rates for certain goods, but these rates are seen to be insufficient to effectively limit consumption of unhealthy products and enhance the state's revenue. As a result, new proposals have been introduced to adjust tax rates for several categories of goods and services. As discussed, the most notable changes target tobacco products, sugary beverages, and alcoholic drinks, which are expected to see significant increases in tax rates. Specifically:
For tobacco products, there are 2 options for the amendments of the special consumption tax:
- Option 1: For cigarettes, an absolute tax rate of 2,000 VND per pack is proposed, starting in 2026, with an annual increase of 2,000 VND, reaching 10,000 VND per pack by 2030. For cigars, the absolute tax will be 20,000 VND per cigar in 2026, increasing by 20,000 VND each year to reach 100,000 VND per cigar by 2030. This tax rate will also apply to rolling tobacco1, Vietnamese pipe tobacco, and other forms of tobacco (per 100g or 100ml).
- Option 2: The proposed absolute tax rate for cigarettes in 2026 will be 5,000 VND per pack, with an annual increase of 1,000 VND, reaching 10,000 VND per pack by 2030. For cigars, the proposed tax rate for 2026 is 50,000 VND per cigar, increasing by VND10,000 each year until it reaches 100,000 VND per cigar by 2030. This tax rate will also apply to rolling tobacco, Vietnamese pipe tobacco, and other forms of tobacco (per 100g or 100ml).
For alcoholic drinks, the Ministry of Finance proposes 2 options to increase the special consumption tax through 2030:
|
Types of alcoholic drinks |
Option 1 |
Option 2 |
|
Liquor 20° proof or higher |
· Current tax rate: 65% · Tax increase schedule: + 2026: Instantly increase by 5% + From 2027 to 2030: Increase by 5% per year; the tax rate will be 90% in 2030. |
· Current tax rate: 65% · Tax increase schedule: + 2026: Instantly increase by 15% + From 2027 to 2030: Increase by 5% per year; the tax rate will be 100% in 2030. |
|
Liquor under 20° proof |
· Current tax rate: 35% · Tax increase schedule: + 2026: Instantly increase by 5% + From 2027 to 2030: Increase by 5% per year; the tax rate will be 60% in 2030. |
· Current tax rate: 35% · Tax increase schedule: · + 2026: Instantly increase by 5% + From 2027 to 2030: Increase by 5% per year; the tax rate will be 70% in 2030. |
|
Beer |
· Current tax rate: 65% · Tax increase schedule: + 2026: Instantly increase by 5% + From 2027 to 2030: Increase by 5% per year; the tax rate will be 90% in 2030. |
· Current tax rate: 65% · Tax increase schedule: + 2026: Instantly increase by 15% + From 2027 to 2030: Increase by 5% per year; the tax rate will be 100% in 2030. |
For drinks containing sugar levels of 5mg per 100ml or higher, the Draft introduces an immediate special consumption tax of 10%.
The proposed additions are believed to align with recommendations from the World Health Organization (WHO) and are consistent with the legal framework of countries both within the region and globally.
Timing for determining special consumption tax
The draft law introduces specific provisions regarding the timing to determine the special consumption tax. These provisions were previously outlined only in guiding circulars. Specifically, Article 7 of the Draft specifically states:
- The timing to determine the special consumption tax on goods is the point at which ownership or usage rights is transferred to the buyer, regardless of whether payment has been received.
- The timing to determine the special consumption tax on services is the point at which the service provision is completed or when the invoice for the service is issued, regardless of whether payment has been received.
- The timing to determine the special consumption tax on imported goods is the point at which customs declaration is registered.
These regulations have been consistently applied in practice, making their inclusion in the new LSCT necessary to ensure uniformity, comprehensiveness, and effective implementation.
The upcoming LSCT is expected to bring significant changes aimed at addressing public health concerns, environmental sustainability, and the State's revenue. Businesses and consumers should prepare for stricter regulations and shifts in consumption habits, in sectors like tobacco, alcohol, and sugary beverages. Staying informed and adapting to these changes will be crucial for compliance and long-term success.
Footnotes
1 "Rolling tobacco" or "loose tobacco" is the term for shredded tobacco leaf products (unwrapped)."Rolled tobacco" refers to tobacco sticks.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
