Proposing to increase tax rate for cigarettes to the highest rate

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Illustrative photo. Source: Internet

At the seminar entitled “Tax for cigarettes: Should increase or reduce tax rate” held on 8th May 2018, Mr. Nguyen Tuan Lam, expert of the World Health Organization (WTO) said that in the 21st century, about 1 billion people died due to smoking in the world. Notably, 600,000 deaths from passive smoking, of which 64% are women.

In order to reduce the harmful effects of cigarettes, many countries in the world have taken measures on price and tax. These are considered as key and effective measures to reduce cigarettes consumption of people, especially young people.

“According to WHO and the World Bank, when increasing tax rate to raise by 10% of price, the consumption will reduce by 4% in developed countries and 5% in developing countries. Especially, the consumption by children and the poor will reduce by 10%. Also, the high price of cigarettes prevents children from smoking” Mr. Lam said.

In particular, the World Bank said that with a 10% increase in tax rate for cigarettes, it raises 7% more tax revenue for countries on average.

According to Mr. Dao The Son, a lecturer in the University of Commerce, currently, the tax rate in retail price of cigarettes in Vietnam is still relatively low, accounting for 35%. This rate in Thailand and Singapore respectively is 73% and 66%. Moreover, the Ministry of Finance's statistics show that cigarette price increases have not caught up with increases of people’s income.

In the draft report proposing to develop the revised law on Tax administration of the Ministry of Finance, the Ministry has proposed to amend the calculation of Special Consumption Tax for cigarettes with two methods. The first method is collecting Special Consumption Tax under the mixed method (combining the collection under the tax rate and Specific tax rate). Accordingly, supplementing a Specific tax rate of VND 1,000 per pack of 20 cigarettes and VND 10,000 per cigar. This regulation will take effect from 1st January 2020. The second method is that the tax rate increase will be implemented under this roadmap: from 1st January 2020 the tax rate will increase from 75% to 80%; from 1st January 2021 the tax rate will increase from 80% to 85%.

Facing this proposal, Mr. Son said that the increase in tax rate is necessary, because the difference in price between tobacco products, as tobacco products with a low price will effectively be cheaper. At the same time, helping State management agencies to easily control and predict revenue from tax.

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However, Mr. Son said that the proposal on the Specific tax rate of VND 10,000 per pack was low because it only helped to reduce the smoking rate by 1.5% (meanwhile, it needs to reduce by 6.5%).

“In order to achieve the target of the national strategy, the tax rate for cigarette needs to be increased high enough to reduce the average smoking rate of 3% by 2020. Thus, the first method of the Ministry of Finance should be specified as follows: from 1st January 2020, besides the current tax rate, supplementing the specific tax rate of VND 2,000 per pack. In the second method, we recommended that Vietnam should increase Special Consumption Tax of VND 5,000 per pack. Specifically, from 1st January 2020, besides the current tax rate, supplementing a Specific tax rate for cigarettes of VND 5,000 per pack”. Mr. Son proposed.