Alcohol is determined to universally be a demerit good.

Thus, governments

around the world discourages its consumption. Naturally, alcohol is usually a good

that comes with a high indirect tax. By the WHO (2025), 17.2% is the excise tax

on beer and 26.5% is the excise tax on spirits. However, in Vietnam specifically,

alcohol is also considered a luxury product. This means that it is also heavily given

a “special consumption tax” (SCT) which is also an ad valorem tax. Vietnam has

already imposed 65% tax with 20% or higher alcohol levels as well as beer and

35% on beverages with less than 20% alcohol (Reuters, 2025). They are aiming for

90-100% by 2030. This comes as a controversy as legislation implementing in

2026 to raise the SCT because experts debate that by having higher taxes, there

will be parallel markets, decreased equitability, and delayed growth.

Here is a graph showing the

correction of negative externalities

of consumption of alcohol. This is

because when consuming alcohol,

social costs also arise such as

increased health care expenses,

reduced productivity, higher crime

rates, and domestic violence (Movendi National, 2025). As we can see that

consuming demerit goods do not only affect the consumer, but it also affects the
society as well. Therefore, we would want our optimum demand for demerit good

to be as low as possible. Thus, on the graph we would see a how Qopt is lower than

Qm. The difference between the curve represents the social costs. Welfare loss is

derived from the allocative inefficiency: the dead weight loss is the overallocation

of resources to produce alcohol, which is a demerit good.

To discourage this social cost, government

imposes an indirect ad valorem tax (a fixed

percentage of the price on this good and

service) to discourage the consumption of

alcohol. This raises the price of Alcohol

Consumed from Pm to Popt which reduces

the quantity demanded for alcohol to decrease from Qm to Qopt . This is because

these taxes would be adding to the costs of production, resulting in higher price.

This would force consumers to have a contraction in demand due to the high

prices. Here, we could see that by imposing a tax that is exactly equal to the

external cost, so that the MPC shifts upwards until it overlaps the MSC. This isn’t

economically viable most of the time because the strain of adding tax onto the

product would cause much less economic growth. Therefore, the indirect taxes for

these demerit goods would usually be less than the external cost. However, the area

that resulted in a jump between the two graphs would be the value the government
receives from these taxes. Government can therefore reallocating this new avenue

of money to facilities that could then further offset these social external costs.

The experts in this article assume that the consumption of alcohol is much

higher for households: therefore, they predict that by the increase of SCT tax on

alcohols, the demand for these products on the parallel market would increase. This

would be a possibility because the demand for alcohol is relatively inelastic and by

increasing the price of these products, these consumers would have to look for

illegal goods/unauthorized by the Vietnamese Customs control to fulfil their needs.

The article states that there is a “71% surge in unofficial beer output in 2024”

Consequently, by increasing the STC, the Vietnamese government is further

increasing the equitable divide between the rich and the poor, thereby retaining

allocative inefficiency.

The solution that these experts provide for this allocative inefficiency is to

implement “tax increases from 65 percent to 70 percent, then raise by 5 percent

annually until reaching 90 percent in 2030” or “tax increases from 65 percent to 80

percent, then raise by 5 percent annually until hitting 100 percent in 2030.” I think

that by raising definitively and jumping from 65% to 80% (option 2) would make

the Vietnamese economy to grow slower. This is because, as established, alcohol is

a relatively demand inelastic product for the lower class; therefore, this jump from

65% to 80% would be big enough for the lower classes to stop spending on this
product. This would mean that the vienamese alcohol businesses would lose in on

revenue, resulting in government losing in tax revenue. This cycle would also

affect unemployment by increasing it. Therfore, following option 1 is safe and

much better for the economy.

https://vietnamlawmagazine.vn/how-new-rules-on-prevention-of-adverse-

effects-of-alcohol-will-impact-alcohol-advertising-and-promotion-practice-

note-27137.html#:~:text=The%20Law%20on%20Prevention

%20and,Practice%20Note%20tries%20to%20examine.

https://www.who.int/data/gho/data/themes/topics/taxes-on-alcoholic-

beverages

https://wine-intelligence.com/blogs/wine-news-insights-wine-intelligence-

trends-data-reports/vietnam-proposes-major-alcohol-tax-hike-to-curb-

drinking?