Increasing the excise tax does not increase the smuggling of cigarettes

Union is working on a wide range of tobacco tax support to reduce tobacco use in countries around the world. So, could you tell us about the trend of adjusting international tobacco tax to reduce the use of tobacco in recent times, especially countries with characteristics similar to Vietnam, pleases?

Union has helped to raise taxes in many countries around the world, including countries in Asia. Among the countries we support, many countries have raised tariffs and tobacco prices significantly; some countries approach the World Health Organization's (WHO) recommendation, which is the tax rate on prices of retail sales reaching nearly 70%.

Some countries still use different tax rates for different types of products. This is not good. We are continuing to support some countries in simplifying the taxation of tobacco, and Vietnam is a good example.

The fact is that even countries that are imposing different tariffs on high-priced products and low-priced products also argue that it is important to promote tax increases and increase prices on low priced products. So, it is way of limiting low-cost tobacco companies to encourage children and beginners to smoke.

One last point I would like to emphasize is that the increase of taxes should ensure that the increase needs to keep pace with inflation and income growth for many countries, so in Vietnam, which has a very high rate of inflation and income growth. If we only raise taxes at a certain level, the impact of tax will be reduced as per capita income increases.

What are the advantages and disadvantages of the recent trend in tobacco tax regulation in the world?

The important thing to do is to increase the price of cigarettes so that this product becomes more expensive to consumers. They will be less motivated to smoke.

With the imposition of absolute taxation, a significant advantage is that the gap between the price of cheap cigarettes and the price of expensive cigarettes will be narrowed, thereby reducing opportunities for young people to start smoking and reducing behavior of movement from expensive to cheap when we raise taxes.

Another important advantage of raising taxes is the price increase of cheap products and good impact on youth consumption, as well as groups of the poor. For teens, the rising price of cigarettes will reduce their starting motivations for cigarettes. For the poor, most of them use cheap cigarettes, when prices increase, it will encourage them to reduce consumption. As a result, many of the burdens of disease relating to cancer and cardiovascular disease which cause tremendous burden for families and society will decrease.

It is argued that raising taxes on tobacco products will lead to increased smuggling. What is your opinion on this issue?

In countries where we support tobacco control policies as well as tax increases, we do not see smuggling increasing after tax increases.

It is important to emphasize that whether the tax increases or not, every country has to do better with tax administration, including the licensing of retail, wholesale, use of tax stamps or the control of trade at the gates and control of the market.

Moreover, the characteristics of the Vietnamese market are that the majority of product lines are relatively high price and have relatively high margin benefit. So, if we raise taxes on low-end products, the margins of high-priced products will not change much, which will not affect the market share of smuggled goods.

Could you give us a few examples of some countries recently adjusting tobacco tax increases and combining with effective anti-smuggling measures, please?

The best example is in the UK. Ten years ago, tobacco consumption was relatively high at over 20%, but in recent years, the UK government has raised tobacco taxes significantly, but thanks to better tobacco control policies, the tobacco market share is now only less than 10%. This is the best example to show that after tax increases, smuggling has not increased but also decreased.

We also have other examples in developing countries such as Brazil, Thailand, the Philippines, ... all countries have significantly increased taxes in recent years, but the rate of smuggling has not increased.

Thus, in the above countries, it can be seen that tax policy has made a positive contribution.

Currently, the Ministry of Finance of Vietnam is drafting amendments and supplements to the Law of special Consumption Tax. In the draft opinion, it is proposed to apply the absolute additional tax on domestically produced and imported cigarettes beside current tax rates. How do you rate this proposal?

We strongly encourage this proposal from the Ministry of Finance. Absolute tax is a good tool. Compared with the current rate of taxation applied by Vietnam, the application of an absolute tax rate for all tobacco products will draw the price gap nearer between low and high end products. As I said above, this will reduce the ability of consumers moving from high-end to low-end when raising taxes.

The second advantage of absolute tax is to reduce the possibility of tax evasion of enterprises operating in this industry. When we apply the tax rate, the ability to evade taxes is so great that businesses can transfer prices from production to consumption, but if the absolute tax is applied then this is very unlikely.

The most important advantage of absolute taxation is the price increase of low-end products. The base price of these grade products is very low, if the tax rate is applied, the tax increase is not really high, but if the absolute tax is applied, the increase is really significant. Thus, the prices of lower grade products will increase significantly. This has two benefits; to encourage the poor to reduce smoking and to prevent young people from joining the smoking group.

In this policy revision, we expect Vietnam to introduce more tax adjustments every year so that tax increases will increase at the same rate of income and inflation if it is faster, it will be better.

Thank you very much!