Ministry of Health proposes to raise cigarette Tax

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Tax and price control is the effective measure to control the rate of smokers.

On May 31 2018, the Tobacco Control Fund under Ministry of Health held a workshop to update information on the implementation of the Law on Tobacco Control, World No Tobacco Day and the National Non-smoking Week from 25 to 31 May 2018 entitled “Smoking cigarettes is the main cause of cardiovascular disease”.

One of the main causes of the high rate of cigarette smoking and slow reduction, Mr. Khue said, that it is because the price of cigarette in Vietnam is still low, even very low when compared to income level. The price of a pack of cigarettes is VND 6,000 per pack, popular brands are less than VND 20,000 per pack. According to the World Health Organization's (WHO) Global Data for 2017, Vietnam’s cigarette price is among 15 countries with the lowest price in the world.

Over the past 20 years, after inflation being adjusted, the price of cigarette has not increased, even reduced. While Vietnam’s average income per capita has steadily increased, thus it is easy to buy cigarettes, even for the low income groups and teens.

The Special Consumption Tax on cigarette in Vietnam is applied to the selling price of the manufacturing establishment, thus although the current tax rate is 70% and increases to 75% in 2019, the tax rate (Special Consumption Tax plus VAT) on the retail price only accounts for 35% to 40%, it is far from the WHO’s recommendation of 70% on the retail price.

“With the tax rate of 35%-40% on the retail price, Vietnam is among the group of countries with the lowest tax rate in the world and ASEAN region (higher than Laos and Cambodia),” Mr. Khue said.

According to Mr. Khue, tax on cigarette needs to increase to at least VND 2,000 per pack or VND 5,000 per pack in order to reduce the rate of cigarette use, thereby reducing the morbidity and mortality caused by cigarettes.

Explaining for this proposal, the representative of Ministry of Health said that Resolution 20/NQ-TW dated 25th October 2017 of the Central Executive Committee on strengthening protection, care and improvement of people’s health in the new situation has requested to raise the Special Consumption Tax on goods which are harmful to health such as alcoholic drinks, carbonated drinks and cigarettes to restrict the consumption.

Answering the reporter’ question about how the tax increase will relate to employment and smuggling. The representative of Ministry of Health said that this lacked basis, because the cigarette industry uses a lot of machinery and very few laborers. The labor force accounts for a very small portion in economies. A study by the University of Commerce in 2014 showed that if the tobacco consumption declined, consumers would use other goods and create more jobs in other industries. The number of jobs created is greater than the number of jobs lost.

Regarding the smuggling, Mr. Khue said that in the world cigarette smuggling is not related to a tax increase. In many countries, for example, such as Brazil, when reducing cigarette tax, the smuggling has not decreased, and when raising tax, smuggling has not increased. The scale of smuggling mainly depends on anti-smuggling and transparency in management.

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In Vietnam, the smuggling of cigarettes are due to three main causes, including import duty barriers, cigarette smoking habit and smuggling control still facing many challenges. According to data from the Vietnam Tobacco Association, 90% of the market share of smuggled cigarettes is concentrated in the 5 brands Jet, Hero and etc, and the price of cigarettes in Vietnam is higher than the legal cigarettes. In addition, illegal cigarettes are still not well controlled at the retail stage in the domestic market.