Raising Tobacco Tax In Vietnam: A Dual Solution For The Economy And Public Health

Raising Tobacco Tax: Achieving The Dual Goal Of Enhancing The Quality Of Economic Growth And The Health Of Vietnamese People

 Vietnam is recommended to boldly increase the Special Consumption Tax (SCT) on tobacco to achieve a “dual objective”: both enhancing the quality of sustainable economic growth and reducing tobacco consumption while improving public health. This view was unanimously agreed upon by experts at a training program organized by the Vietnam Center for Economic and Strategic Studies (VESS) on April 23 in Hanoi.

Context And Purpose Of The Training Program

 At the Program, Master Phạm Văn Long – Director of VESS stated that the training session aimed to analyze the link between raising tobacco tax and reactions from the market, businesses, and the smuggling situation in Vietnam. The impacts of tobacco tax policy on the state budget, public health, healthcare costs, and labor productivity were discussed to clarify the tax’s role in sustainable development. The program also created a forum for health and economic experts and relevant parties to exchange views on the role of tobacco tax in the current context of Vietnam. The information from the training session is particularly useful as the National Assembly is considering amending the Law on Special Consumption Tax, including regulations on tobacco tax, providing additional perspectives for National Assembly deputies.

Numerous Socio – Economic Consequences From Tobacco

 According to Master Phạm Văn Long, the high smoking rate in Vietnam causes numerous serious health, economic, and social consequences. However, raising tobacco tax still faces obstacles from concerns about burdening low-income individuals and potentially increasing smuggling. Mr. Long emphasized: “There is already significant evidence showing that these concerns are not entirely valid.” Therefore, analyzing the role of tobacco tax within the socio-economic ecosystem is necessary. He recommended that, as Vietnam moves towards fiscal policies for sustainable development, raising tobacco tax is a strong solution to reduce consumption, improve health, and increase state revenue.

Tax Increases Have Not Been Sufficient To Impact Tobacco Consumption Demand

Master Phan Thi Hai, Deputy Director of the Tobacco Harm Prevention and Control Fund, shared at the Program that from 2006 to 2019, Vietnam only increased the SCT on tobacco three times, with the increase each time being low (only 5%) and the intervals between increases being quite long. Specifically: in 2006, the rate increased from 55% to 65%; in 2016 (after 8 years), it increased from 65% to 70%; in 2019 (after 3 years), it increased from 70% to 75%.

Analyzing more specifically, Master Phan Thị Hải stated that for a pack of cigarettes with a retail price of 10,000 VND, the ex-factory price is only about 3,900 VND. Increasing the tax from 70% to 75% of the ex-factory price would only raise the price by about 220 VND. Coupled with potential price increases by retailers, the retail price might increase by about 300 VND, equivalent to 3%. However, with average inflation at 4% and average income growth at 5%, the impact of the tax increase on consumption demand during these periods was very small.

Experts agreed that these tax increases were too small, only impacting consumption reduction in the year of the increase before consumption quickly rebounded. Evidence from data shows: the 10% tax increase in 2006 (from 55% to 65%) only reduced consumption in that year (domestic consumption volume decreased from 4,032 million packs in 2005 to 3,451 million packs in 2006) but increased back to 3,897 million packs in 2007. The 5% increases in 2016 and 2019 followed a similar pattern, with consumption decreasing slightly in the following years but then increasing again.

Currently (since 2019), Vietnam applies an SCT rate of 75% calculated on the ex-factory price. The ratio of tobacco tax (including SCT and Value Added Tax – VAT) to retail price is only 36%. This level is significantly lower than the average of 59% in middle-income countries and only about half of that in most ASEAN countries (Thailand 78.6%, Singapore 67.1%, Indonesia 62.3%).

Meanwhile, the recommendation of the World Health Organization (WHO) is that the tax level on retail price should reach 75%. The price of the most popular cigarette pack in Vietnam is only about 0.9 USD, ranking 15th among 19 countries in the Western Pacific region, classified by WHO as “nearly the lowest”.

SCT Tax Reform For Tobacco In Vietnam Is Needed

 Experts affirm that SCT tax reform for tobacco is extremely necessary. Implementing high tax rates early will help reduce economic, social, and human losses, supporting Vietnam in achieving national tobacco control and health objectives, as well as health-related Sustainable Development Goals (SDGs).

To effectively reduce consumption, Master Phan Thị Hải proposed reforming the tax policy by adding an absolute tax component (moving towards a mixed tax system) at a sufficiently large level. Tax increases need to follow a regular roadmap so that tobacco prices keep pace with income growth and gradually reach the optimal level of 75% of the retail price, thereby reducing the prevalence of tobacco use. Regarding the specific tax level, Ms. Hải suggested adding an absolute tax of at least 5,000 VND per pack in 2026 and gradually increasing it to 15,000 VND per pack by 2030, applied in parallel with the current proportional tax.

From an economic perspective, expert Đào Thế Sơn commented that the SCT on tobacco should be viewed as a fiscal policy supporting economic growth. Mr. Sơn proposed: “Vietnam needs to boldly increase the SCT to enhance the quality of growth and achieve sustainable growth. Specifically, the [absolute] tax should be increased from 5,000 VND per pack starting in 2026 and gradually rise to 15,000 VND per pack by 2030.”