Soft drink firms make big money, pay small taxes in Vietnam
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Business has been sweet for the four major companies that dominate Vietnam’s soft drinks market, but they pay a relative pittance in taxes.
The big 4 in Vietnam’s sweetened beverage market are: Coca-cola Vietnam, an arm of American Coca-cola, Suntory Pepsico, a fully foreign owned joint venture between U.S. PepsiCo Inc. and Japan’s Suntory Holdings Limited, URC Vietnam based in the Philippines, and Vietnamese firm Tan Hiep Phat.
High consumption in Vietnam has boosted revenues for these firms, Suntory Pepsico leading the way.
Truong Tuyet Mai, deputy director of the National Institute of Nutrition, said in June that Vietnamese people are forecast to consume over 5 billion liters of sweetened drinks in 2018, nine times more than in 2000, and the figure is estimated to reach 11 billion by 2025.
According to Vietnam Association of Liquor, Beer and Beverages, a Vietnamese person currently consume more than 23 liters of soft drinks per year and the figure will keep rising in the future.
To date, Vietnam has not imposed a special consumption tax on sweetened drinks, collecting just corporate income tax. The tax paid by firms making the sweetened drinks has, therefore, been quite modest, compared to their revenues.
Economist Vu Dinh Anh said on Friday that “there might be two reasons for the low income of these companies: one is transfer pricing and the other is the high expenditure on advertisement.”
As for advertisement, it is easy to understand that those companies have to spend a big sum each year on all media channels for their products, Anh said.
Vietnam used to put a cap on the spending for advertisement but that policy is no longer applied, said Anh.
Those two reasons might result in the low income and lead to the low corporate income tax payment, he added.
The Ministry of Finance has proposed a 10 percent special consumption tax on different type of beverages, including sweetened drinks.
If passed, the proposal will go into effect in 2019.
Questions & Answers
Q.What are the names of the four main companies dominating Vietnam's soft drink market?
What are the names of the four main companies dominating Vietnam's soft drink market?
The four main companies are Coca-cola Vietnam, Suntory Pepsico, URC Vietnam, and the Vietnamese firm Tan Hiep Phat. Suntory Pepsico is a joint venture between PepsiCo Inc. And Suntory Holdings Limited.
Q.Why might these soft drink companies be paying low corporate income tax in Vietnam?
Why might these soft drink companies be paying low corporate income tax in Vietnam?
Economist Vu Dinh Anh suggests two main reasons: transfer pricing and high expenditure on advertising. Companies spend substantial amounts on advertising across various media channels.
Q.What is Vietnam's Ministry of Finance proposing regarding taxation on sweetened drinks?
What is Vietnam's Ministry of Finance proposing regarding taxation on sweetened drinks?
The Ministry of Finance has proposed introducing a 10 percent special consumption tax on various types of beverages, including sweetened drinks. If approved, this tax would take effect in 2019.
Q.How much has sweetened drink consumption increased in Vietnam since 2000, and what is the forecast for 2025?
How much has sweetened drink consumption increased in Vietnam since 2000, and what is the forecast for 2025?
Vietnamese people are forecast to consume over 5 billion litres of sweetened drinks in 2018, which is nine times more than in 2000. This figure is estimated to reach 11 billion litres by 2025.