Proposal to increase Special Consumption Tax on tobacco products

view of the workshop

The tax ratio on retail price is much lower than in middle-income countries

Vietnam is among the 15 countries with the highest number of smokers in the world, with approximately 15.3 million smokers and 33 million people affected by secondhand smoke. Around 40,000 people die each year in Vietnam from tobacco-related diseases.

These figures highlight the alarming impact of tobacco on public health and society. As a result, tobacco control has become a global effort, involving not only individuals and families but also entire societies and nations.

Speaking at the workshop, Prof. Nguyen Nhu Quynh, Director of National Institute for Finance, despite implementing various measures and action programs, including increasing excise taxes on tobacco products in 2016 and 2019, the achieved results have been insufficient.

The smoking rate in Vietnam has decreased, but the pace of decline has been slow, from 47.4% among men in 2010 to 45.3% in 2015 and around 42.7% in 2022. One of the main reasons is that tobacco prices in Vietnam are still generally low, currently ranking 157th out of 161 countries according to the World Health Organization (WHO).

The excise tax rate on tobacco in Vietnam under the current law is 75% of the manufacturer's selling price. However, total excise taxes only account for about 38-39% of the retail price of tobacco in Vietnam, much lower than the average for middle-income countries (59%) and most ASEAN countries (around 60-70%), as well as the recommendations of the WHO and the World Bank (WB) of around 2/3 to 3/4 of the retail price.

To increase the effectiveness of tobacco control, the Government's Tax Reform Strategy to 2030, issued by Decision No. 508/QD-TTg dated April 23, 2022, proposes a solution for the excise tax policy that are building a roadmap for adjusting and increasing taxes on tobacco products, beer, and alcohol to limit production, consumption, and fulfill international commitments; studying the application of a combination of ad valorem and specific taxes on some goods and services subject to excise tax.

In 2023, in the "National Strategy on Prevention and Control of Tobacco Harm by 2030", the Prime Minister assigned the Ministry of Finance to build a roadmap to increase excise taxes on tobacco products to achieve the Strategy's target of reducing the smoking rate; ensure that by 2030 the tax rate reaches the proportion of the retail price as recommended by the WHO; study the option of using a mixed tax structure.

Prof. Nguyen Nhu Quynh said that, the Ministry of Finance has proposed adding a specific tax rate to tobacco products and two options for increasing taxes in a roadmap from 2026 to 2030 in the draft Law on Excise Taxes (amended).

It is necessary to choose the most optimal solution

Clarifying cigarette tax rates, Ms. Le Thuy Linh, Deputy Director of VAT and Excise Tax Division, Department of Supervision, Management of Tax, Fee and Levies (Ministry of Finance), said that the draft maintains the tax rate of 75% and supplements the absolute tax rate according to the roadmap from 2026 - 2030 to contribute to achieving the goal of reducing the smoking rate according to the Tobacco Harm Prevention Strategy and towards achieving the proportion of tax on the retail price of cigarettes as recommended by WHO (75%).

In the two options on the absolute tax rate according to the draft, Ms. Le Thuy Linh said, with option 1: for cigarettes, the absolute tax rate will be applied from 2026 at VND 2,000/pack, increasing by VND 2,000 each year, to VND 10,000/pack by 2030.

For cigars, the absolute tax rate is VND 20,000/cigar, the tax will increase by VND 20,000 each year and reach VND 100,000/cigar by 2030. This tax rate also applies to shredded tobacco, chewing tobacco or other forms, other preparations from tobacco plants for smoking, inhalation, chewing, sniffing, sucking (100g or 100ml).

Option 2 proposes an absolute tax rate of VND 5,000/pack in 2026, increasing by VND 1,000 each year to VND 10,000/pack by 2030. For cigars, the proposed tax rate for 2026 is VND 50,000/cigar, increasing by VND 10,000 each year to VND 100,000/cigar by 2030. This tax rate is also proposed for shredded tobacco, chewing tobacco or other forms, other preparations from tobacco plants for smoking, inhalation, chewing, sniffing, sucking (100g or 100ml).

Participants at a workshop on the draft Excise Tax Law on Tobacco Products (ETL) generally agreed on the need to amend the ETL to implement the Party and State's policy on healthcare, in line with international practices and to ensure a stable source of revenue for the state budget.

However, to ensure the level of excise tax paid to the state budget and limit negative impacts on the legal tobacco industry, the Vietnam Tobacco Association proposed two options with an absolute excise tax rate for cigarettes. Both options have a starting point of VND 1,000/pack in 2026 and VND 3,000/pack by 2030. Accordingly, the increase in the ex-factory price and retail price compared to the current one is only from 4-20% to avoid a shock in the increase in the price of legal cigarettes, minimize large fluctuations, and thereby have the opportunity to stabilize the market and prevent smuggled cigarettes.

After the comments at the workshop, Ms. Nguyen Thi Cuc, Chair of the Vietnam Tax Consultancy Association, said that the comments at the workshop all agreed with the goal of issuing the ETL with a mixed method of calculating taxes both relatively and absolutely, towards the goal of increasing taxes to contribute to reducing the number of smokers, ensuring the interests of public health, the interests of the state budget, the interests of the supply chain from raw materials, production, logistics...

However, Ms. Cuc said that it is impossible to have a solution that fully guarantees the interests of both consumers, the state, and enterprises, but we will choose the optimal solution to avoid not achieving the initially set goals. Enterprises need to share responsibility with the community and people to help the drafting team and the National Assembly choose the best option.

Ms. Cuc also said that the drafting agency needs to study and choose a feasible tax increase option and roadmap to achieve the set goals, ensuring a relatively harmonious balance between the interests of public health and the stable production and business of enterprises and the state budget.