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

VIETNAM NATIONAL UNIVERSITY, HANOIVIETNAM JAPAN UNIVERSITY LUONG NGOC MY LINH THE CONSUMPTION IMPACTS OF IMPOSING EXCISE TAX ON SUGAR- SWEETENED BEVERAGES IN VIETNAM MAJOR: MASTER OF PUB

VIETNAM NATIONAL UNIVERSITY, HANOI

VIETNAM JAPAN UNIVERSITY

LUONG NGOC MY LINH

THE CONSUMPTION IMPACTS OF IMPOSING EXCISE TAX ON SUGAR- SWEETENED BEVERAGES IN VIETNAM

MASTER'S THESIS

……….

Master of Public Policy

VIETNAM NATIONAL UNIVERSITY, HANOI

VIETNAM JAPAN UNIVERSITY

LUONG NGOC MY LINH

THE CONSUMPTION IMPACTS OF IMPOSING EXCISE TAX ON SUGAR- SWEETENED BEVERAGES IN VIETNAM

MAJOR: MASTER OF PUBLIC POLICY

CODE: PILOT

RESEARCH SUPERVISOR:

Associate Prof Kaida Naoko

Dr Vu Hoang Linh

Two years in Vietnam Japan University has come and gone It is my pleasure tobecome a part of second intake students of this university, where I had a chance tomeet many interesting and unique friends as well as many enthusiastic and excellentprofessors Thanks to Vietnam Japan University, I was able to experience a totallydifferent academic environment from other school, which is worth to spend my timeand challenge myself

First, I would like to express my sincere gratitude to my supervisors, Assoc.ProfKaida Naoko from University of Tsukuba and Dr Vu Hoang Linh from VietnamJapan University for their enthusiasms, patience and support from the beginning tofinishing of my master thesis With their numerous years of experiences andprofound knowledge, both supervisors have always given me helpful adviceswhenever 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 inJapan I also would like to say thanks to all staff in VJU, especially in Program ofMaster 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 besuccessful 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 frienddespite of my ignorance when studying in VJU

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 3

CHAPTER 2: LITERATURE REVIEW 4

2.1 An overview of sugar-sweetened beverage 4

2.2 Taxing sugar-sweetened beverages 5

2.3 Discussion over excise tax on SSBs 8

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

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

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 SSB46

LIST OF FIGURES

Figure 1.1: Government budget and public debt in Vietnam 2011 – 2016 3

Figure 2.1 Health impacts of obesity 5

Figure 2.2 Pathway for the effect of fiscal policy intervention 6

Figure 2.3 The 5-tier health impact pyramid 8

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

Food Away from Home

General Statistics Office

High-fructose corn syrup

Income and expenditure household

Income household

Ministry of Finance

Non-communication disease

Ordinary least squares

Overweight and obesity

Public health product tax

Sugar-sweetened beverage

The Almost Ideal Demand System

Vietnam Household Living Standard Survey

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 wereoverweight, 13% of adults were suffering from obesity whereas more than 18% ofchildren and adolescents between 5 and 19 years old were obese (World HealthOrganization, 2018) In parallel with higher living conditions, nowadays, the number ofdeaths 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 imbalancebetween intake and outlet calories as well as the insufficiency physical activities and so

on (World Health Organization, 2018) Among products that contain high calorieintake, sugar-sweetened beverages (SSBs) was said to be one of the main reasons forO&O because its ingredients have a high amount of free sugar (World HealthOrganization, 2015) Based on this argument, around 40 countries and territories in theworld has levied some specific tax policy on SSBs in order to increase the price andthen reduce consumed amount of this kind of beverages (Global Food ResearchProgram, University of North Carolina at Chapel Hill, 2018)

From a poor country which had been severely destroyed by war, Vietnam hasrapidly developed In 2018, the poverty rate according to multi-dimension approachwas only 6.8% (General Statistics Office, 2018a) in comparison to 58% in 1993 and75% in 1990 (World Bank, 2002) Parallel with successful economic achievements,Vietnam is also facing to some problems such as the increasing of the prevalence ofO&O, particularly among children and adolescent in urban areas According to asurvey conducted by Ministry of Health, the ratio of Vietnamese adults (18 to 69years 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 5year 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 adultwho suffers from O&O under 12% until 2025 and under 10% until 2030 (VietnamPrime Minister, 2019), which means that Vietnamese authority has a lot of things to do

to deal with this situation The rising trend was also observed among children andadolescents, 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 citiessuch as Hanoi and Ho Chi Minh city, the ratio of children and adolescents who aresuffering 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 theinner 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, thereare 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 onhealth; (ii) are normally consumed by high-income consumers in the society; (iii)are unnecessary services (Vietnamese Assembly, 2008) The rationale for levyingexcise tax was its high-containing sugar amount in each item, which is one of thereasons for O&O in Vietnam and around the world Added to that, imposing excisetax on SSBs is a new trend in the world and being strongly encouraged byinternational health organizations, such as WHO This was a part of Six-Tax-LawAmendment in order to reform tax system in Vietnam The tax law was introduced

in the context of increasing government budget deficit and high public debt ratio inVietnam, which was reflected by figure 1.1 Therefore, this reforming scheme wasexpected to increase government revenue and solve these problems

Government Revenue (%GDP) Government Expenditure (%GDP) Government Budget Deficit (%GDP) Public Debt (%GDP)

Figure 1.1: Government budget and public debt in Vietnam 2011 – 2016 Data for

the Ministry of Finance (2012, 2013a, 2013b, 2013c, 2014a, 2014b, 2015, 2016a,2016b, 2017a, 2017b)

1.2 Research Objective and Research Question

The 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 excisetax on SSB impact on Vietnamese consumers?” and below sub-questions:

product?

pay attention to, from perspective of consumption?

3

CHAPTER 2: LITERATURE REVIEW

2.1 An overview of sugar-sweetened beverage

According to World Health Organization (WHO), free sugar, which is usually added

to foods and beverages or naturally contained in honey, syrups and fruit juice and itsrelative products, includes monosaccharides and (C6H12O6) and disaccharides(C12H22O11) It has been proved that higher intake of free sugar provides significantenergy to diets without specific nutrients, which may harm to the balance of theirintake energy That is one of the reasons for O&O in recent years In addition, freesugar in foods and beverages is also related to dental caries Therefore, the intake offree sugar should be limited to 10% of total energy intake in near future and to lessthan 5% in further (World Health Organization, 2015)

SSBs include, but are not limited to sport drinks, energy drinks, lemonade or fruitdrinks, sweetened iced tea, vitamin water drinks and carbonates drinks, whichcontain added caloric sweeteners, for example, sucrose, high-fructose corn syrup(HFCS), which is produced from corn syrup (glucose) or fruit-juice concentrates It

is said that SSB is one of the highest free sugar containing products In case ofVietnam, the governmental authority has not given any official definition of SSB.However, according to WHO, SSB referred to any beverage item containing addedsugars, for example sucrose of high fructose corn syrup (Lobstein, 2014) Thisingredient will create a sweet flavor to beverages and satisfy consumers’ taste

In combination with insufficient physical activities, SSBs could causes to obesity anddiabetes because it leads to the excess of intake calorie, particularly to children,adolescents and adults (World Health Organization, 2016) Furthermore, obesity willaffect to human lives and health on different dimensions, physical health, mental health

as well as social and spiritual aspects as figure 2.1 (Djalalinia, Qorbani, Peykari,

& Kelishadi, 2015) That is the rationale for governmental intervention into food andbeverage industry

•Impaired eating behaviors

Figure 2.1 Health impacts of obesity Reprinted from Health impacts of obesity by

Djalalinia, Qorbani, Peykari, & Kelishadi (2015)

2.2 Taxing sugar-sweetened beverages

There are two main kinds of policy tools that government can utilize to improve diet,they are taxation and subsidies By taxing on unhealthy food and subsiding forhealthy food, consumer will be encouraged to gradually change their consumedbaskets to healthier products Then, it is hoped that this transformation can makesignificant effects on food industry and society The mechanism of how tax andsubsidy on food and beverage effect on consumption was expressed by figure 2.2

Tax and/or subsidy – incentives for substitutionwith healthier foods and beverages

Revenue generation:

potential healthcare/ healthpromotion funds

Increased purchase and consumption od

healthy foods Decreased purchase and consumptionof less healthy food

Financial implications

Decreased diet- Financial implications

related risk factors for

NCDs

Decreased NCD risk

Figure 2.2 Pathway for the effect of fiscal policy intervention Reprinted from

Fiscal Policies for Diet and Prevention of Noncommunicable Diseases: Technical

Meeting Report by World Health Organization (2016)

In relation to SSBs, many countries are applying tax on this kind of products There

are two types of tax: ad-valorem and specific tax Many countries are imposing an

ad-valorem tax on SSB, which means that the tax rate is calculated as a percentage of

product value As a result, the price of SSB will be relatively higher than other

products Whereas, a specific tax is fixed at a constant by unit For example, in

Mexico, tax on SSB is 10 Mexico dollars by unit In general, both kind of taxes aim

to increase relative price of SSBs in expectation to decrease their consumed volume

(World Health Organization, 2018)

Rationale for taxing SSBs is related to their negative impacts on health as mentionabove To be more detailed, Lustig and his colleagues have pointed out fourcharacteristics of SSBs that are similar to tobacco and alcohol that make them to betaxed and regulated Firstly, it is said that sugar is unavoidable, but rather than natural-made, man-made sugar is becoming more popular than ever before and is added tonearly all processed food Secondly, the toxicity of sugar has been mentioned by givingthat excessive sugar consuming induce disease related to metabolic syndrome such ashypertension, high triglycerides and insulin resistance, diabetes and aging process.Added to that, it is doubted that it also links to cancer and cognitive decline Thirdly,sugar is potential for abuse because it signals brain to consume more and make impacts

on the feeling of satiety Finally, as consequence of healthcare and human costs ofmetabolic syndrome, consuming excessive amount of sugar possibly cause bad effects

on society (Lustig, Schmidt, & Brindis, 2012)

From perspective of public health, there are several ways to intervene into choices ofconsumers The figure 2.3 shows a framework to conduct a public health campaign.The 5-tier health impact pyramid describes how different in the impacts of publichealth intervention methods and can be a framework for public action that related toimprove public health The first tier of this pyramid is socio-economic factors, whichrefers to address socio-economic status and educational status that are importantdeterminants of health The second tier of pyramid is to change the context toencourage healthy decision, which suggests the interventions to make the healthychoice become the default choices of citizens, without concerning on societal factorslike education or income The third one mention on long-lasting protectiveinterventions, which no longer reaches people collectively but is an individual choice.The next level is clinical interventions and the highest is counselling and educationalinterventions The interventions belong to lower level of pyramid are said to be moreeffective in changing citizens’ habits due to wide range of impacts, whereas the higherlevels are depended on individual decisions and require more personal autonomy, ofwhich people are normally lack (Frieden, 2010) The SSB excise tax belongs to

second tier because it leads to an increase in price and make number of consumers decrease, which means that SSB is not the default choice of some people.

healthy decisionSocio-economic factors

by high-income consumers; and (c) are unnecessary services (Vietnamese Assembly,2008) According to proposal by Ministry of Finance (MOF), an ad-valorem tax at 10

or 20% should be applied on SSBs because of their bad effects on health On the view

of MOF, they prefer the first plan (The Ministry of Finance, 2017c)

2.3 Discussion over excise tax on SSBs

Despite of positive policy objectives, this tax policy has raised fierce controversyand dialogue not only among researchers, policy makers but also community aroundthe world Both sides, approval and opposition, have their own opinions to protecttheir arguments against the another and Barry, Niederdeppe, & Gollust (2013) Inthe research in 2017, the author based on the opposing arguments to SSB excise taxgiven by Autralian Beverages Council, which is a lobby group for sugary beverage

enterprises, to counter This organization tried to keep the tax away from policy table,

so the author of the research had to establish the counterpoints for the opposingarguments, depended on the actual SSB consumption situation in Australia Anotherpublic opinion survey conducted by Barry, Niederdeppe, & Gollust showed thatAmerican citizens tend to agree with pro-tax than anti-tax arguments because theybelieved that the tax would not affect to the consumption of unhealthy products (60%),the tax was just a way to fill in the government budget (58%) The majority of them alsothought that it was unacceptable way for government to intervene into their lives(53.8%), would be opposed by most of American (53%) and had bad effects on the poor(51%) However, some of them said that the tax contributed largest to O&O (49%) andhelped to raise budget for prevention this NCD (41%) due to the severence in thesuffering of O&O in this country

Table 2.1 summarizes the key arguments regarding to SSB excise tax around the world,

which were summarized by Backholder and Martin (2017) and Barry, Niederdeppe, &Gollust (2013) In the research in 2017, the author based on the opposing arguments toSSB excise tax given by Autralian Beverages Council, which is a lobby group forsugary beverage enterprises, to counter This organization tried to keep the tax awayfrom policy table, so the author of the research had to establish the counterpoints forthe opposing arguments, depended on the actual SSB consumption situation inAustralia (Backholer & Martin, 2017) Another public opinion survey conducted byBarry, Niederdeppe, & Gollust showed that American citizens tend to agree with pro-tax than anti-tax arguments because they believed that the tax would not affect to theconsumption of unhealthy products (60%), the tax was just a way to fill in thegovernment budget (58%) The majority of them also thought that it was unacceptableway for government to intervene into their lives (53.8%), would be opposed by most ofAmerican (53%) and had bad effects on the poor (51%) However, some of them saidthat the tax contributed largest to O&O (49%) and helped to raise budget for preventionthis NCD (41%) due to the severence in the suffering of O&O in this country (Barry,Niederdeppe, & Gollust, 2013)

Table 2.1 Controversy over SSB excise tax

more

choices

companiesintheirmarketingstrategies

• The tax policy is failed in some • Successful in some countries

effects

• The difference of the effects of tax onbetween the rich and the poor is notmuch

and healthy drinks

reduce O&O by calorie information

on packages, removing SSB from

school in some countries

create job in other sectors

• Long-term effects

Note: Reprinted from Commentary: Sugar-sweetened beverage tax: The inconvenient truth by Backholer & Martin (2017) and Taxes on Sugar-Sweetened Beverages:

10

Result from a 2011 National Public Opinion Survey by Barry, Niederdeppe, &

Gollust (2013)

Theoritically, the tax policy had both positive and negative impacts on the economy, which had been foreseen in many researches However, these impactswere different depending on the characteristics of each region or country

socio-2.4 Consumption Impacts of Excise tax around the world

Officially, it was been recorded that tax on soft drinks like SSB had been placedsince 1930s in Denmark (The Department of Health, Social Services and PublicSafety of Northern Ireland, 2015) Taxing SSB is now becoming popular around theworld due to its negative effects on health, especially among countries which arehaving severe O&O According to a Research Program on global food, there are 41countries and territories are now issued this regulation, which will be showed byfigure 2.4 To be more detailed, the effective date, tax rate and taxed items in eachcountry was showed in Annex 1

Figure 2.4 Map of cities and countries that are implementing taxing sugary drinks.

Program, University of North Carolina at Chapel Hill (2018) Retrived from

ps_Nov2018_global.pdf

Different countries choose different kinds and level of tax to regulate sugarybeverages Among countries that imposed the tax policy, most of them are nowcontinuing the policy, whereas Denmark, one of the first countries intervening intofood market has abolished their “fat tax” after fifteen-month of implementation(World Health Organization, 2016) The reason is related to its negative effects onDanish socio-economic In reality, there are many studies researching on the taxeffects in above countries It has been proved out that this tax policy has bothnegative and positive effects The positive impacts of the tax policy include:

Firstly, it has been observed and demonstrated that the tax policy makes the priceincrease which lead to a decrease in the consumption

The case of Mexico should be a typical example for this outcome, which was proved out by few researches For example, a research by Grogger in 2015, which was focused

on the price changes in post-tax period, had found out that after implementing, the tax policy had affected on the price of regular sodas and other sugary sodas by different levels To regular sodas, the tax took effect let the prices rise more than the amount of the tax whereas the prices or others sugary beverages rise less than that amount

[Grogger, 2015] The increasing trend in price were agreed by a research team of WorldBank However, this group simultaneously claimed that the prices were not high enough

to move up prices of the whole market [Bonilla-Chacin, Iglesias, Suaya, Trezza,

Macias, 2016] By comparing the observed consumed volume in post-tax period with the estimated volume in case of not issuing the tax policy, the observational study by Colchero et al after one-year implementation has shown that purchases of taxed

beverages in 2014 had decreased by 6% in average at an increasing rate up to 12% by December 2014 The decreasing trend had been detected among three socio-economic groups, but the lower status group was affected more than the others, with an average at 9% decline in 2014 and up to 17% by December 2014

(Colchero, Popkin, Rivera, & Ng, 2016) Also focusing on price-change effects ofthe tax in Mexico, aimed to two different group of items, high caloric foods (HCF)and/or sugary drinks, Aguilar et al have found that the price of sugary drinks hadincreased but more than 100 percent of tax had passed through on consumer prices.After 2 years of implementation, they found that the purchased liters of sugarydrinks decreased by 6% (Aguilar, Emilio, & Seira, 2016).

In France, in a study of Nutrinet for the General Directorate of Health in 2013, sodaconsumption has declined (World Health Organization, 2016) In Hungary, thecountry has already implemented a public health product tax (PHPT) since 2011,prices had increased and partly led to 26-32% of consumers who decrease the intake

of subjected items (Martos, et al., 2015) In Berkeley (California), one of the firstcities in America issued SSB tax, after four-month of implementation, theconsumption of SSB had decreased 21% (Falbe, et al., 2016)

Secondly, there is a shift from SSB to healthier items A study by Martos et al in

2015 has shown that due to public health in Hungary, a lot of consumer choose tosubstitute their choices by healthier products, for example, mineral water accountedfor 63%, fruity and vegetable drinks accounted for 82 – 86%, do-it-yourself sweetdrinks accounted for 95%, and green herbs or spices accounted for 84% (Martos, etal., 2015) In Mexico, per capital consumption of bottled water increased (WorldHealth Organization, 2016) In America, after four-month of implementation, theamount of water consumption in Berkeley raised more than compared cities, +63%

in comparison with +19% (Falbe, et al., 2016)

Thirdly, the tax income contributes to government budget For example, in 2014,the tax help French raise €300 million (World Health Organization, 2016) In case

of Hungary, SSBs contributed the highest proportion (65%) to the reported tax HUF61.3 billion (approximately €200 million) of PHPT The second and the third is pre-packaged sweets and energy drinks with the proportion of 19% and 8%,respectively (Martos, et al., 2015)

Fourthly, the tax policy force food producers to reformulate their products Forinstance, the response of consumers to government’ public health scheme had made40% of food producers reformulate their products, 30% of them remove and 70% ofthem decrease unflattering ingredients (Martos, et al., 2015)

Fifthly, the tax affected on targeted groups For example, in France, the change inbehaviors regarding to the tax had been shown clearly among young people,households that has adolescents ang lower income group (World HealthOrganization, 2016) In Hungary, overweight and adolescent adult were more likely

to change their behavior regarding to targeted products (1.8 – 2.7 times) in a positiveway than the others (Martos, et al., 2015) In case of Mexico, the effects on differentsocial status households were varied Aguilar and his colleagues proved thathouseholds with higher income were affected most (Aguilar, Emilio, & Seira, 2016)while Colchero et al said that household in low level of socio-economy have beenaffected largest (Colchero, Popkin, Rivera, & Ng, 2016)

Besides above positive results, there were several unexpected impacts of the tax hadbeen recorded Despite of aiming to reduce the prevalence of O&O, there is nothingchange in BMI and even higher after implementing the tax policy This fact hasbeen claimed in Mexico (Aguilar, Emilio, & Seira, 2016) or Finland (NorthernIreland Assembly, 2015)

In Denmark, the authorities even had to abandon their “fat tax policy” due to severaldisadvantaged consequences The tax policy was said to be ineffective because itwas not enough to make consumers change their consumed habits They couldeasily switch to cheaper products or do cross-shopping Added to that, theadministrative cost was too high (10% of the tax revenue) and even led to lost 1,300jobs (Snowdon, 2013)

Several studies have tried to estimate the own price elasticities of SSB in order tomeasure the impacts of SSB excise tax on consumption According to a systematicreview on SSB excise tax in middle income countries like Vietnam in the period of

1990 - 2016, including Brazil, Ecuador, India, Mexico, Peru and South Africa, the

author group had found out that the own elasticities of SSB in these nations varied from

-0.6 to -1.2, which meant that when the price of SSB increased by 1%, the consumed

amount would decline by 0.6 to 1.2% Moreover, the research also pointed out that

whereas milk is a substitute beverage of SSB, food away from home (FAFH), candy

and snack were complementary to SSB (Nakhimovsky, et al., 2016) Another

systematic review by Andreyeva, Long and Brownell (2010) collected data from 160

studies related to price elasticities of foods and beverages in America from 1938 to

2010 showed that soft drinks have the elasticity from -0.8 to -1.0 (Andreyeva, Long,

& Brownell, 2010) The, several studies had also estimated the own price elasticity

in American in different household group Lin et al (2011) estimated that own-price

elasticity of low-income group in USA 0.95) were lower than high-income group

(-1.29) (Lin, Smith, Lee, & Hall, 2011) In UK, Brigg et al (2013) measured elasticity for

low, middle and high-income group by -0.79, -0.80 and -0.85, respectively (Briggs, et al.,

2013)

2.5 Previous Studies about Sugar Sweetened Beverages in Vietnam

Due to bad effects of sugary drinks on health, MOF had introduced excise tax on

this kind of products since 2014, but this proposal only covered non-alcoholic

carbonated sugary drinks Finally, because of strong oppositions of researchers,

enterprises and citizens, the implementation of this tax policy had been postponed

One of the most important bases for those protest was the research conducted by

Nguyen Dinh Chuc (2014) named “Soft drink industry and the economic impact of

excise tax on non-alcoholic carbonated soft drink in Vietnam” In this research,

Chuc had approached the issue from two directions – elasticity approach and

general equilibrium approach From elasticity approach, he tried to estimate price

elasticity of SSB through the equation 1:

In which, represents the quantity demanded of SSB, represents the price andrepresent the control variables Using monthly volumes and values of soft drinkssold in the market of the six largest cities and provinces including Hanoi, Ho ChiMinh city, Da Nang, Can Tho, Hai Phong, Nha Trang from 2007 to 2013, Chuc hasestablished regression result as equation 2:

From general equilibrium approach, he estimated the impact of the tax policy on thewhole economy According to the results, taxing 10% on SSBs would results in 12.1million dollars decrease in GDP, 8.46 million dollars increasing in governmentrevenue, whereas the soft industry revenue might loss 40.5 million dollars Oneconomical aspect, it showed that this tax policy had both negative and positiveimpacts on Vietnamese economy Besides measurable impacts, there might havesome other negative consequences, employment effect, income effect, influences onother drinks and unknown administrative cost, for instance (Chuc, 2014)

In 2016, excise tax on unhealthy drinks was re-proposed but wider coverage to allsugary drinks MOF has proposed two alternatives, imposing excise tax on sugarydrink at 10% or 20% tax rate However, it was more partial to the first option Forthe purpose of “Economic assessment of the possibility to apply the excise tax onnon-alcoholic beverage products in Vietnam”, Phong, T N and Thai, P T hasconducted a research in 2017, in which they had used The Almost Ideal DemandSystem (AIDS) to estimate owned-price elasticity of SSB in Vietnamese market,which had the formation as equation 3:

16

= + ∑ ln( ) + ln ( ) + ∑ ln + (3)

=1

In which, represents the proportion of i th product expenditure on the total expenditure

of four drinks; represents the price of four kinds of drinks, including beverages, milk,

coffee and tea; represents for dummy variables and household variables, including

household size, age, education level, gender of household’s head, location and income

group; IMR represents Inverse Mill’s Ratio, which relates to the decision of household

to participate in the market or not (Phong & Thai, 2017)

Based on the outcomes of the model and literature review, they had assessed three

out of five characteristics of a good tax policy according to Stiglitz (1986),

including economic, simplicity and equality The result showed that the own

elasticity of SSB was -2.7718, which means that if the price of SSB increased by

1%, the demanded quantity would decrease by 2.7718% This figure was quite

similar to the result provided by Chuc (2014) In conclusion, Phong and Thai said

that the tax policy can satisfy only one out of three characteristics, which is

economic characteristic Therefore, they suggested that SSB should not be levied

excise tax and government should follow revenue tax policy or amending corporate

income tax (Phong & Thai, 2017) However, it is hard to conclude whether a tax

policy is good or not because the AIDS only focuses on individual market but not

the whole economy To assess the possibility of the imposition of excise tax, it is

necessary to apply another approach, computable general equilibrium, for example

2.6 Econometric model to estimate demand function

Estimating demand function had always been an attractive topic among economists

because demand analysis was a comprehensive way to approach to consumer choice

The main objective of this approach was fundamentally to measuring pure numbers

so-called elasticities, which were used to evaluate the reaction of consumers to a change in

affecting factors like income or prices However, it had never been an easy

work due to complicated technique and strict restrictions, including adding-up, restriction, homogeneity restriction and symmetry restriction Basically, there were two forms of a demand function, Marshallian demand function and Hicksian demand function In Marshallian demand function, a giving quantity ( ) was a function of prices ( ) and total expenditure ( ) as equation 4, which meant that it reflected the relationship between consumed quantity and its price (Deaton & Muellbauer, 1980b):

= ( , )

Whereas, the Hisksian demand function was seemed quantity ( ) as a function of utility ( ) and price ( ) In which, utility was a function of prices ( ) and total expenditure ( ), so Hicksian demand function could be written as equation 5 (Deaton & Muellbauer, Economics and consumer behavior, 1980b):

it was obviously that this function was hard to satisfy the adding-up restriction

2.6.1 The Stone’s system

In 1954 Richard Stone firstly introduced his achievement in estimating demandfunction The function had the form as equation 6:

=1

In which P is the price index, calculated by equation 7

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log = ∑ log

It was easily seen that was the total expenditure elasticity The compensated

elasticity of item i in respect to item k was calculated as equation 8 (Stone, 1954):

Despite of satisfying some restriction, actual estimation results showed that there

existed conflict in the relationship between different food items For example, food

item A might be substitution of B, but B was complementary product of A (Deaton

& Muellbauer, Economics and consumer behavior, 1980b) Therefore, the most

popular application of this system was so-called the Stone index, which was utilized to

solve the problem of nonlinearity of inherited systems

2.6.2 The Rotterdam models

The Rotterdam model was developed by Theil (1965) and Barten (1969), which

used the similar approach as Stone but rather than using the function of logarithms,

this model used differentials as equation 9 (Theil, 1965):

In which, was the budget share of good k If we multiplied this function to , it would

Regarding to restrictions, Rotterdam model could satisfy the restrictions underspecific conditions In 1969’s research, Barten had tried to test the restrictions.Excepting adding-up restriction, he showed that there were conflicts between theoryand reality in homogeneity and symmetry restrictions (Barten, 1969)

2.6.3 Working-Lesser model

The original form of Working-Lesser model expressed budget share of a specificitem by a linear function of the logarithm of total expenditure and price index of allproducts that were under consideration (Working, 1943; Leser, 1963) Despite ofmany different versions, they were all based on and developed from the most basicmodel, which was written as equation 14

= 0 + log

However, the most functional form of this model was showed as equation 15

= 0 + log + ∑ log + ∑ log +

Whereas, referred to household characteristics or demographic factors, which wereused to evaluate the effects of these factors to real expenditure Using this model, it

could be easy to measure cross-price elasticity and expenditure elasticity of each i

item To estimate this model, ordinary least squares (OLS) was normally utilized.This model had become one of the basic foundations for other models and demandsystems later However, because Working-Lesser model was a single equationmodel, it might not satisfy the restrictions of demand function if each item is

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2.6.4 The Almost Ideal Demand System (AIDS)

It could be said that AIDS was inherited from its predecessors as mentioned above

The system was firstly introduced by Deaton and Muellbauer in 1980 (Deaton &

Muellbauer, An Almost Ideal Demand System, 1980a) The cost function of AIDS (

, ), which defined the minimum expenditure level to get a fixed utility level at a

given price, was as function 16

ln ( , ) = 0 + ∑ ln +

1

∑ ∑ ∗ ln ln + 0 ∏ (16)2

Then, if we do a logarithmic differentiation of 16 and maximize the utility level of

consumer, we can get the theoretical form of AIDS as equation 17, which showed

the budget shares as a function of p and x.

The most important advantage of this system was its “flexibility” and its satisfaction

of aggregation across consumers The AIDS was said to automatically meet with

three restrictions of a demand function (Moschini, 1995; Vu, 2008):

• Adding-up restriction which meant that the total value of items should equal

to the total expenditure In AIDS, the dependent variables were the budget share of each

item, so the adding-up restriction should be as equation 19a, 19b, 19c

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(19a, b, c)

• Homogeneous restriction (equation 19) – the Hicksian demands are

homogeneous to degree zero

∑ = 0

• Slutsky symmetry restriction (equation 20), which refers to the symmetry in

the cross-price derivatives of the demands

be invariant to the unit of measurement if it was changed, so it could not be called

as “index” Meanwhile, the change in unit of measurement only affected to theintercept of system in case of the nonlinearity one (equation 7), which was notsignificant to the demand properties (Moschini, 1995) Therefore, this researchwould run the original AIDS model with the function of price index as equation 18

CHAPTER 3: METHOD AND METHODOLOGY

This research aimed to estimate the consumption impacts of imposing excise tax onsugar sweetened beverages – which was proposed by Vietnamese MOF but has notbeen enforced yet due to severe controversy among government authority, scholars

as well as citizens The research focuses on answering the questions: How doesexcise tax imposed on SSBs impact on Vietnamese consumers?

There are several ways to evaluate the impacts of a tax policy, including bothqualitative and quantitative methods This research is trying to apply qualitativemethod in order to measure clearly these impacts and establish accurate policyimplication

3.1 Paradigm

Because of the advantages over other models, the AIDS were still applied popularly inmany researches and this research was also not a bystander However, it is undeniablethat the household characteristic will significantly effects on consumption behaviorsand choices Therefore, this research would employ Ray’s method (1983) to givedemographics into the system The fundamental concept of Ray was to converthousehold with different contexts into equivalent units, in term of some referencehousehold, which was called equivalent scale This scale had an important meaning inwelfare economics as well as public policy in terms of equity, justice and resource

relocation (Ray, 1983) According to Ray’s method, the cost function of a household h

at a given price level p and utility level u was proportional to the cost function of

representative household by a general equivalence scale ̅̅̅̅ as function …, in

The dependent variable ( ) denoted the proportion of consumed value of item i th over all covered

items The independent variable ( ) denoted the average price of item i th that was consumed by the household And, the equivalent scale ̅ 0 ( ) was calculated as a function of household characteristics (function 24) In this research, there were 10 household characteristics that would be mentioned in the next part.

elasticity for item i th

In order to estimate the AIDS, this research used the QUAIDS package, which wasdeveloped by Poi (2012) This package allowed user to estimate the basic AIDSdeveloped by Deaton and Muellbauer (1980) and the quadratic AIDS model ofBanks, Blundell and Lewbell (1997) In addition, user can add to the model severaldemographic variables to estimate In the post estimation stage, this package canestablish a matrix of expenditure elasticity, uncompensated elasticity as well ascompensated elasticity (Poi, 2012)

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3.2 Data Collection

This research used the data collected by GSO every two-year, which is calledVietnam Household Living Standard Survey (VHLSS) The main utilized version isthe one conducted in 2016 but other years’ surveys were also processed in order toshow the trend of SSB consumption in recent years As the method of collection andprocession was the same among years, this part only mentioned about VHLSS 2016

3.2.1 An introduction of Vietnam Household Living Standard Survey 2016

VHLSS was a nation-wide survey in Vietnam that was collected every two years byGSO, in order to inquire information about income, expenditure as well as otherliving conditions of Vietnamese household The most recent survey with availabledata was conducted in 2016, following Decision 1095/QD-TCTK on ConductingHousehold Living Standard Survey in 2016 The detail of VHLSS 2016 wassummarized in table 3.1

Table 3.1 Information about Vietnam Household Living Standard Survey 2016

- Communes that had survey households

There were four periods of time: March, June, September andDecember

Survey content To households: Collected information related to their living

standard:

- Household income: income and income classified by source(from salary; agriculture, forestry and fishery industry; other production and serviceindustry; other)

classified by purpose and by type of expenditure (for meal, clothes, accommodation,commute, education, medicine, culture and other)

households: main demographic characteristics (age, gender, ethnic, marital status);educational level; disease status and medical service using; employment; electric, waterand sanitary condition; voluntary and aid scheme participation

To commune: Collect information that affected to household living standard

school, medical office, market, post office and water source

crops, production supporting conditions like irrigation and agricultural extension), agriculture jobs

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expenditure information (income and expenditure household – IEH) [General

Statistics Office, 2018b] As a requirement of necessary variables, this research

would utilize data of 9.399 IEHs The table 3.2 summarized information about the

Note: Reprinted from Result of the Vietnam Household Living Standards Survey

2016 by General Statistics Office (2018b)

There are eight food items that were under consideration, including sugar, candy,

fresh milk, wine, beer, soft drinks, powered coffee and dry tea This research

focused on SSBs, so its main concern was soft drinks, which was defined as all

bottled beverages in the market such as carbonated drinks, fruit juice, energy drinks

and fresh water, excluding instant tea and coffee Unfortunately, this research could

not extract fresh water from other sugary drinks

3.2.2 Data Processing

This research followed three-step procedure in processing data to estimate the

consumption impacts of excise tax on SSBs Firstly, the necessary data would be

extracted from VHLSS 2016 dataset There were two main groups of figures, the

number and the amount of money that households spent on SSB and other household

characteristics that might affect to their consumption Secondly, these variables

would be given into AIDS in order to estimate the income, compensated anduncompensated price elasticity of SSBs Finally, the research would analyze thedataset and result of AIDS to give some policy implications.

In order to estimate AIDS by using VHLSS 2016, eight food items were added intothe model, including sugar, candy, fresh milk, wine, beer, bottled beverages, instantcoffee and dried tea Regarding to these products, VHLSS 2016 only investigatedthe consumed amount and the consumed value of each household Except freshmilk, VHLSS asked household representative about how much they consumed inholiday, which was assumed to last for 15 days per year, and how much theyconsumed regularly in the last 30 days Therefore, for these items, the estimated

consumed quantity of item i ( ) and the estimated amount of money spending on item i ( ) for one year were calculated as equation 26 and 27:

For price of each item, VHLSS did not survey the actual price of each food item so

in this research, the price of item i th ( ) will be seemed as the average price(Equation 30) of that item in case of positive amount of consuming

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