The consumption impacts of imposing excise tax on sugar sweetened beverages in vietnam

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY LUONG NGOC MY LINH THE CONSUMPTION IMPACTS OF IMPOSING EXCISE TAX ON SUGARSWEETENED BEVERAGES IN VIETNAM MASTER'S THESIS …………………………… Master of Public Policy Hanoi, 2019 VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY LUONG NGOC MY LINH THE CONSUMPTION IMPACTS OF IMPOSING EXCISE TAX ON SUGARSWEETENED BEVERAGES IN VIETNAM MAJOR: MASTER OF PUBLIC POLICY CODE: PILOT RESEARCH SUPERVISOR: Associate Prof Kaida Naoko Dr Vu Hoang Linh Hanoi, 2019 ACKNOWLEDGEMENT Two years in Vietnam Japan University has come and gone It is my pleasure to become a part of second intake students of this university, where I had a chance to meet many interesting and unique friends as well as many enthusiastic and excellent professors Thanks to Vietnam Japan University, I was able to experience a totally different academic environment from other school, which is worth to spend my time and challenge myself First, I would like to express my sincere gratitude to my supervisors, Assoc.Prof Kaida Naoko from University of Tsukuba and Dr Vu Hoang Linh from Vietnam Japan University for their enthusiasms, patience and support from the beginning to finishing of my master thesis With their numerous years of experiences and profound knowledge, both supervisors have always given me helpful advices whenever I crashed into a dead end My honest appreciation goes to JICA, VNU, VJU, University of Tsukuba for giving me great opportunity to study in VJU and experience three-month internship in Japan I also would like to say thanks to all staff in VJU, especially in Program of Master of Public Policy and to the staff in Office of Global Initiatives in University of Tsukuba for their timely assistance and making my study time memorable Besides this, I want to express my thankfulness to all second intake students, especially to become a part of my student life Hope that everyone will be successful and be happy in the future Finally, it will be missing unless mentioning on the encouragement and support of my parents, elder sister and the caring of my niece and nephew and lots of my friend despite of my ignorance when studying in VJU i TABLE OF CONTENTS ACKNOWLEDGEMENT i LIST OF TABLES iv LIST OF FIGURES v LIST OF ABBREVIATIONS vi CHAPTER 1: INTRODUCTION .1 1.1 Research background .1 1.2 Research Objective and Research Question CHAPTER 2: LITERATURE REVIEW 2.1 An overview of sugar-sweetened beverage 2.2 Taxing sugar-sweetened beverages .5 2.3 Discussion over excise tax on SSBs 2.4 Consumption Impacts of Excise tax around the world 10 2.5 Previous Studies about Sugar Sweetened Beverages in Vietnam .15 2.6 Econometric model to estimate demand function .17 2.6.1 The Stone’s system 18 2.6.2 The Rotterdam models 19 2.6.3 Working-Lesser model 19 2.6.4 The Almost Ideal Demand System (AIDS) .20 CHAPTER 3: METHOD AND METHODOLOGY 23 3.1 Paradigm 23 3.2 Data Collection 25 3.2.1 An introduction of Vietnam Household Living Standard Survey 2016 25 3.2.2 Data Processing 27 3.3 Data Analysis .30 3.3.1 Overview of SSB consumption and SSB consumer 30 3.3.2 Expenditure, compensated and uncompensated elasticity 30 3.3.3 The differences in elasticity between different household patterns 31 ii 3.3.4 Welfare effect 32 CHAPTER 4: RESULTS 34 4.1 Sugar-sweetened beverages consumption in Vietnam 34 4.2 AIDS results 35 4.3 The impacts of household characteristics on SSB consumption 38 4.3.1 Urban and rural area 38 4.3.2 Majority and minority .39 4.3.3 The number of children .40 4.3.4 The expenditure quintile 42 4.3.5 Six regions in Vietnam 43 4.3.6 Regular and holiday consumption .44 4.4 Welfare effects .46 4.5 Discussion 48 CHAPTER 5: CONCLUSION 52 5.1 Policy implication 52 5.1.1 Imposing tax on SSB in combination with encouraging a healthy lifestyle 52 5.1.2 Learning from international experiences and pay attention to some specific groups 54 5.2 Further Study .54 5.3 Limitations 55 REFERENCES 56 ANNEX 1: LIST OF COUNTRIES THAT ARE APPLYING SPECIFIC TAX ON SUGAR-SWEETENED BEVERAGE ANNEX 2: DATA PROCESSING SUMMARIZE iii LIST OF TABLES Table 2.1 Controversy over SSB excise tax .8 Table 3.1: Information about Vietnam Household Living Standard Survey 2016 25 Table 3.2 The sample of VHLSS 2016 27 Table 4.1 Elasticity result 36 Table 4.2 Compensating Variation by categories if applying 10% excise tax on SSB 46 iv LIST OF FIGURES Figure 1.1: Government budget and public debt in Vietnam 2011 – 2016 .3 Figure 2.1 Health impacts of obesity Figure 2.2 Pathway for the effect of fiscal policy intervention Figure 2.3 The 5-tier health impact pyramid Figure 2.4: Map of cities and countries that are implementing taxing sugary drinks .11 Figure 4.1 The price distribution of SSB consumed by households in VHLSS 2016 34 Figure 4.2 SSB consumption in Vietnam 2008 – 2016 through VHLSS 35 Figure 4.3 SSB’s expenditure, compensated and uncompensated elasticity be separated by urban and rural area 39 Figure 4.4 SSB’s expenditure, uncompensated and compensated elasticity separated by major or minor ethnicity .40 Figure 4.5 The SSB’s expenditure, uncompensated and compensated elasticity be separated by the number of children in the household 41 Figure 4.6 The SSB’s expenditure, uncompensated and compensated elasticity be separated by the quintile of household 42 Figure 4.7 The SSB’s expenditure, uncompensated and compensated elasticity be separated by six regions in Vietnam 43 Figure 4.8 The SSB’s expenditure, uncompensated and compensated elasticity be separated by time of consuming 45 Figure 5.1 The number of hours that Vietnamese spend on doing exercise .53 v LIST OF ABBREVIATIONS BMI Body Mass Index CV Compensating variation EV Equivalent variation FAFH Food Away from Home GSO General Statistics Office HFCS High-fructose corn syrup IEH Income and expenditure household IH Income household MOF Ministry of Finance NCD Non-communication disease OLS Ordinary least squares O&O Overweight and obesity PHPT Public health product tax SSB Sugar-sweetened beverage AIDS The Almost Ideal Demand System VHLSS Vietnam Household Living Standard Survey vi CHAPTER 1: INTRODUCTION 1.1 Research background In comparison with 1975, the prevalence of overweight and obesity (O&O) worldwide in 2016 was said to be nearly tripled It is estimated that until 2016, 39% of adults were overweight, 13% of adults were suffering from obesity whereas more than 18% of children and adolescents between and 19 years old were obese (World Health Organization, 2018) In parallel with higher living conditions, nowadays, the number of deaths that related to O&O are now more than that caused by underweight Basically, the reason of this non-communication disease (NCD) is said to be the imbalance between intake and outlet calories as well as the insufficiency physical activities and so on (World Health Organization, 2018) Among products that contain high calorie intake, sugar-sweetened beverages (SSBs) was said to be one of the main reasons for O&O because its ingredients have a high amount of free sugar (World Health Organization, 2015) Based on this argument, around 40 countries and territories in the world has levied some specific tax policy on SSBs in order to increase the price and then reduce consumed amount of this kind of beverages (Global Food Research Program, University of North Carolina at Chapel Hill, 2018) From a poor country which had been severely destroyed by war, Vietnam has rapidly developed In 2018, the poverty rate according to multi-dimension approach was only 6.8% (General Statistics Office, 2018a) in comparison to 58% in 1993 and 75% in 1990 (World Bank, 2002) Parallel with successful economic achievements, Vietnam is also facing to some problems such as the increasing of the prevalence of O&O, particularly among children and adolescent in urban areas According to a survey conducted by Ministry of Health, the ratio of Vietnamese adults (18 to 69 years old) who are suffering from O&O (Body Mass Index – BMI ≥ 25) is 15.6%, in which14.9% of men and 16.9% of women) The situation seems worse than year before when these ratios in 2010 were 12.5% of men and 11.4% of women In addition to that, Vietnam Health Scheme has set the target for the percentage of adult who suffers from O&O under 12% until 2025 and under 10% until 2030 (Vietnam Prime Minister, 2019), which means that Vietnamese authority has a lot of things to to deal with this situation The rising trend was also observed among children and adolescents, with the prevalence of O&O among both genders increased from 2.6% in 2002 to 9.7% in 2016 (The Department of Preventive Medicine, 2017) In big cities such as Hanoi and Ho Chi Minh city, the ratio of children and adolescents who are suffering from O&O was 43% in 2009, increased from 12% in 1996 In 2014 – 2015, this ratio in the inner area of Ho Chi Minh city was 50% and a recent survey in the inner area of Hanoi showed that it was up to 40.7% (Hanoi Health Department, 2017) Although the average BMI of Vietnamese was still far less than O&O threshold, there are existing a concern that Vietnam may reach this ceiling soon As an effort in improving Vietnamese health condition, Ministry of Finance (MOF) had introduced a new excise tax applied on SSBs with the tax rate at 10% or 20% in 2016 According to Lax on Excise tax of Vietnam, excise tax is a tax that is applied on specific goods and services that (i) are not encouraged due to their bad effects on health; (ii) are normally consumed by high-income consumers in the society; (iii) are unnecessary services (Vietnamese Assembly, 2008) The rationale for levying excise tax was its high-containing sugar amount in each item, which is one of the reasons for O&O in Vietnam and around the world Added to that, imposing excise tax on SSBs is a new trend in the world and being strongly encouraged by international health organizations, such as WHO This was a part of Six-Tax-Law Amendment in order to reform tax 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https://www.who.int/news-room/factsheets/detail/obesity-and-overweight World Health Organization (2018) Technical Report on: Taxation for Sugar Sweetened Beverages in Sri Lanka, 2017 Sri Lanka: World Health Organization 62 ANNEX 1: LIST OF COUNTRIES THAT ARE APPLYING SPECIFIC TAX ON SUGAR-SWEETENED BEVERAGE No Country America City Effective date Tax rate Berkeley, California March 2015 cent/ ounce Navajo Nation April 2015 2% junk food tax Philadelphia, January Pennsylvania 2017 1.5 cent/ ounce Albany, California April 2017 cent/ ounce Boulder, Colorado July 2017 cents/ ounce Oakland, California July 2017 cent/ ounce San Francisco, California January 2018 cent/ ounce Taxed items Sweetened drinks Exempt meal-replacement and dairy drinks, diet sodas, 100% fruit juice and alcohol Minimal-to-no nutritional value food item, comprising SSBs Sugar and artificially sweetened drinks Added caloric sweetener containing drinks Exempt 100% fruit juice, artificially sweetened beverages, infant formula, milk products, medical drinks, alcohol beverages Added sugar and sweeteners containing beverages Added caloric sweetener containing drinks Exempt 100% fruit juice, artificially sweetened beverages, infant formula, milk products, medical drinks, alcohol beverages Added sugar containing drinks, drinks with more than 25kcal per 12 oz, syrup and powder concentrates Exempt 100% fruit juice, artificially sweetened beverages, infant formula, milk products, medical drinks, alcohol beverages Seattle, January Washington 2018 Bermuda October 2018 April 2019 Dominica September 2015 Barbados August 2015 Mexico January 2014 Peru May 2018 Chile October 2014 Belgium January 2016 United Kingdom April 2018 Sugary drinks, exempt diet 1.75 cent/ sodas, milk-based products ounce and fruit juice 50% import Sugar, sugary drinks, tax candies and dilatable 75% import Exempt diet soda, 100% juice, diet iced tea tax Food and drinks with high 10% excise sugar content, including soft tax drinks and energy drinks Sugary drinks, including carbonated soft drinks, juice 10% excise drinks and sport drinks tax Exempt 100% juice, coconut water, plain milk All drinks with added sugar peso/liter Excluding milks and ($0.05) yogurts Drinks with less than 6-gram 17% tax sugar/100ml 25% tax (increased Non-alcoholic beverages from 17% with ≥ 6-gram sugar/100ml tax) 10% ad- Drinks with less than 6.25valorem tax gram sugar/100ml Sugary drinks with ≥ 6.2518% ad- gram sugar/100ml valorem tax Exempt 100% fruit juice and dairy-based beverages €0.068/liter Soft drinks with added ($0.077) sweeteners excise tax €0.41/liter ($0.48) or €0.68/kg Concentrates ($0.79) excise tax £0.18/liter Drinks with more than 5($0.23) gram sugar/100ml £0.24/liter Drinks with more than 8($0.32) gram sugar/100ml 10 Ireland 11 France 12 Spain 13 Portugal 14 ST Helena 15 Norway 16 Finland 17 Estonia 18 Latvia £0.20/liter ($0.23) May 2018 £0.30/liter ($0.35) January €0.11/1.5l 2012 ($0.12) 2018 €20/hL (Updated) ($0.23/L) Catalonia Drinks with more than 5gram sugar/100ml Drinks with more than 8gram sugar/100ml Drinks with added sugars or artificial sweeteners More than 11-gram sugar/100mL Drinks with added sugars €0.12/L and more than 8-gram ($0.14) sugar/100mL May 2017 Drinks with added sugars €0.08/L and to 7-gram ($0.093) sugar/100mL Drinks with a sugar content €0.08/L of less than 80-gram sugar/100mL February 2017 Drinks with a sugar content €0.16/L of more than 80-gram sugar/100mL £0.75/liter Carbonated drinks from 15May 2014 excise duty gram sugar/L and above 3.39 NOK/L Drinks containing added ($0.39) sugar or sweeteners 1981 20.32 NOK/L Syrup concentrates ($2.48) 1940 €0.22/L Sugar-containing soft drinks (Updated Sugar-free soft drinks, since €0.11/L mineral water 2011) Drinks with to 8-gram €0.10/L sugar/100mL or only artificial sweeteners January Drinks with to 8-gram 2018 €0.20/L sugar/100mL and only artificial sweeteners Drinks with more than 8€0.30/L gram sugar/100mL Drinks with added sugar, May 2004 sweeteners or other (Increased €0.074/L flavoringExcluding fruit/ tax rate vegetable juice with less since 2016) 19 20 Hungary Morocco 21 Denmark 22 India 23 United Arab Emirates 24 Bahrain 25 Saudi Arabia 26 Mauritius 2011 January 2019 than 10% added sugar, sweeteners or flavoring HUF/L ($0.025) 200 HUF/L ($0.70) 0.7 MAD/L VAT ($0.074) 0.6 MAD/L ($0.063) 0.15 MAD/L ($0.016) 0.45 MAD/L ($0.047) Soft drinks Syrup concentrates Soft drinks and noncarbonated drinks with more than 5-gram sugar/100mL Energy drinks Nectars Soft drinks manufacturers Food and drinks items that October 16 Kroner has more than 2.3% 2011 (£1.78) saturated fat (World Health 2013 Organization, 2016) 12% goods All processed packaged and services beverages and foods tax July 2017 Additional 28% goods Aerated beverages and and services lemonades tax 100% excise Energy drinks October tax 2017 50% excise All carbonated drinks except tax sparkling water 100% excise Energy drinks October tax 2017 50% excise Aerated soft drinks tax 100% excise Energy drinks December tax 2017 50% excise Carbonated drinks tax January MUR Sodas, syrups, fruit drinks 2013 0.03/gram with added sugar (Updated October 2016) 27 South Africa 28 Philippines 29 Thailand 30 Maldives 31 Sri Lanka 32 Brunei sugar ($0.00086) Sugary drinks and concentrates (exempt 0.021 4g/100mL)For unlabeled ZAR/gram April 2018 sugar, default tax based on sugar 20-gram sugar/100mL ($0.0015) (exempt dairy drinks, fruit and vegetable juice) pesos/L Drinks with sugar and ($0.11) artificial sweeteners January 2018 Drinks using HFCS Exempt dairy drisnk, 12 pesos/L sweetened instant coffee, ($0.23) sweetened drinks using coco sugar or stevia, 100% juice Drinks with more than 6gram sugar/100mL 3-tiered ad- The ad-valorem tax will September valorem and decrease, and excise tax will 2017 excise tax be increase in the future based on the amount of sugar in the products MVR 33.64/L All energy drinks import tariff March ($2.18) 2017 MVR Soft drinks (sweetened and 4.60/L tariff unsweetened carbonated ($0.30) sodas, sport drinks) LKR 0.50/gram sugar November ($0.003) or Sweetened drinks 2017 LKR 12/L ($0.068), whichever is higher BND 4.00/10L Drinks with more than 6April 2017 excise tax gram sugar/100mL ($0.29/L) 33 Samoa 34 FR Polynesia 35 Palau 36 Fiji WST 0.40/L ($0.15) CFD 40/L local ($0.38) 2002 or CFP 60/L import tax ($0.57) $0.28175/L 2003 import tax FJD 0.35/L local ($0.17) 2007 (Updated 15% import in 2016 duty and 2017) 10% import duty 1984 37 Nauru 2007 38 Cook Islands 2013 39 Tonga 2013 40 Kiribati 2014 41 Vanuatu February 2015 Carbonated beverages Sweetened drinks Carbonated soft drinks Sweetened drinks Concentrates Products with added sugar 30% import (with removal of bottled duty water levy) 15% import duty (with Sweetened drinks 2% rise per year) Pa'anga/L Carbonated beverages ($0.44) Drinks containing added 40% excise sugar and fruit concentrates tax Exempt 100% juice 50 vatu/L Carbonated beverages with excise added sugar or other ($0.44) sweeteners (Global Food Research Program, University of North Carolina at Chapel Hill, 2018) ANNEX 2: DATA PROCESSING SUMMARIZE Variable Definition/Method of processing The consumed quantity of item ith 𝑞𝑖 365 - For fresh milk: 𝑞𝑖 = 𝑞30𝑑𝑎𝑦𝑠 × - For other food item: 𝑞𝑖 = 𝑞𝑣𝑎𝑐𝑎𝑡𝑖𝑜𝑛 + 𝑞30𝑑𝑎𝑦𝑠 × 30 360 30 The amount of money spending on item ith 𝑣𝑖 Food item ith 365 - For fresh milk: 𝑣𝑖 = 𝑣30𝑑𝑎𝑦𝑠 × - For other food item: 𝑣𝑖 = 𝑣𝑣𝑎𝑐𝑎𝑡𝑖𝑜𝑛 + 𝑣30𝑑𝑎𝑦𝑠 × 30 360 30 The average price of item ith: 𝑣𝑖 - If 𝑞𝑖 > and 𝑣𝑖 > 0, 𝑝𝑖 was calculated: 𝑝𝑖 = - In other case, 𝑝𝑖 was the median value of other 𝑝𝑖 by 𝑝𝑖 𝑞𝑖 district - If the median value of 𝑝𝑖 by district were unable to be calculated, it was replaced by the median value of 𝑝𝑖 by province Urban or rural urban urban equaled to if household was living in urban area - urban equaled to if household was living in rural area Household characteristic majorit y Majority or minority (majority = 1, minority = 0) - majority equaled to if household had Kinh ethnic - majority equaled to if household had other ethnic hhsize The number of members in the household exp_qu The expenditure quantile of household is ranked from an to 5, in which, “1” is the lowest and “5” is the highest nchild The number of children under 16 years old in the household The region that household is living: reg6_1 equaled to reg6_1 if household is living in Red River Delta, and reg6_1 equaled to if household is not living in Red River Delta The region that household is living: reg6_2 equaled to reg6_2 if household is living in Midlands and Northern Mountains, and reg6_2 equaled to if household is not living in Midlands and Northern Mountains The region that household is living: reg6_3 equaled to reg6_3 if household is living in North Centrals and Central Coast, and reg6_3 equaled to if household is not living in North Centrals and Central Coast The region that household is living: reg6_3 equaled to reg6_4 if household is living in Central Highlands, and reg6_3 equaled to if household is not living in Central Highlands The region that household is living: reg6_5 equaled to reg6_5 if household is living in South East, and reg6_5 equaled to if household is not living in South East ... objective of this paper is to estimate the consumption impacts of imposing SSBs’ excise tax in Vietnam It will focus on the main research question “How does excise tax on SSB impact on Vietnamese consumers?”.. .VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY LUONG NGOC MY LINH THE CONSUMPTION IMPACTS OF IMPOSING EXCISE TAX ON SUGARSWEETENED BEVERAGES IN VIETNAM MAJOR: MASTER OF PUBLIC... measure the impacts of SSB excise tax on consumption According to a systematic review on SSB excise tax in middle income countries like Vietnam in the period of 14 1990 - 2016, including Brazil,