Will increasing tobacco taxes reduce consumption and harm?

Faced with the health hazards and economic losses caused by smoking to individuals, families, society, and the environment, Resolution No. 20-NQ/TW dated October 25, 2017, of the Central Committee of the Communist Party of Vietnam on strengthening the protection, care, and improvement of people's health in the new situation; Resolution 43/2022/QH15 dated January 11, 2022, of the National Assembly on the Program for socio-economic recovery and development; and directives from the Prime Minister have identified the solution of "increasing the special consumption tax on goods harmful to health such as alcoholic beverages, carbonated drinks, and tobacco to limit consumption."

On June 8, 2024, the National Assembly passed Resolution 129/2024/QH15 on the legislative and ordinance drafting program for 2025. Accordingly, the amended Law on Special Consumption Tax was included in the legislative and ordinance drafting program for 2025, to be submitted to the National Assembly for comments at the 8th session (October 2024) and passed at the 9th session (May 2025).

According to Ms. Thuy, the use of excise tax policies will impact perceptions and consumption behavior regarding tobacco products, as assessed from several aspects.

Therefore, by increasing taxes on tobacco products, retail prices will rise, which can discourage consumers from buying them. Higher prices are particularly effective in preventing teenagers and low-income individuals from starting or continuing to smoke.

Higher prices could lead to a decrease in consumption among current smokers. Some may reduce the number of cigarettes they smoke, while others may quit smoking altogether.

High prices can act as a barrier for teenagers who might start smoking. Studies have shown that raising prices is very effective in preventing teenagers from starting to smoke.

Currently, according to experts, the proposed revised excise tax rate on tobacco is still low, and its impact on better controlling tobacco consumption and protecting public health has not met expectations.

It is known that in recent years, although the excise tax on tobacco products has been adjusted upwards in 2008, 2016, and 2019.

However, with low tax rate increases (5%-10% each time), a tax base based on low manufacturer/importer selling prices, and long intervals between tax increases, the impact of tax increases on cigarette prices and tobacco use rates is negligible.

Although the smoking rate among adult men decreased from 47.4% in 2010 to 45.3% in 2015 and 41.1% in 2022, this reduction is still modest. The rate of male smoking remains high and has not met the targets set in the National Strategy for Tobacco Control until 2020.

Recent data released by the General Statistics Office shows that tobacco consumption in Vietnam is starting to increase again. From 2022 to 2023, total production increased by more than 10%, while cigarette prices in Vietnam remain very low and almost unchanged.

Furthermore, the fact that the annual increase in per capita income has outpaced the increase in cigarette prices has led to a growing demand for cigarettes.

The downward trend in the real price of cigarettes and the increasing purchasing power of cigarettes over time is a serious concern because it increases people's access to cigarettes, especially for young people and the poor. Therefore, excise taxes need to be increased sufficiently and frequently to have an effective impact on reducing consumption.

Recently, the Ministry of Finance solicited feedback on the draft Law on Special Consumption Tax (amended) to be submitted to the National Assembly for comments at the 8th session in October 2024 and to be passed by the National Assembly at the 9th session in May 2025.

The draft proposes adjusting the tax rate on tobacco products to maintain the current rate of 75% and adding an absolute tax rate with a phased increase each year from 2026 to 2030, with two options.

Specifically, Option 1 proposes an increase of 2,000 VND/bag in the first year, reaching 10,000 VND by 2030. Option 2 applies an increase of 5,000 VND/bag starting in 2026, with a progressive increase of 1,000 VND/bag over the next five years to reach 10,000 VND/bag in 2030.

According to Dr. Angela Pratt, Head of the World Health Organization (WHO) Representative Office in Vietnam, the Ministry of Finance's proposal to increase taxes is a step in the right direction but not enough to achieve the national strategy's goal of reducing smoking rates.

The WHO recommends a more aggressive approach, whereby the excise tax should be increased starting at VND 5,000/bag and reaching VND 15,000/bag by 2030, in addition to a product tax equal to 75% of the current ex-factory price.

The WHO's recommended approach would lead to a relative 13% reduction in smoking rates. Smoking rates among men and women would fall below 36% and 1.0% respectively by 2030, thus achieving the goals of Vietnam's National Strategy for Tobacco Control. This approach would significantly reduce the total number of smokers, estimated at around 696,000 fewer by 2030 compared to 2020.

These rates will also increase real tax revenue, adjusted for inflation, by 169% annually, corresponding to an additional VND 29.3 trillion in tobacco tax revenue per year compared to 2020.

In addition, Angela Pratt clarified misinformation regarding the increase in tobacco excise taxes. The WHO representative emphasized that the drastic tax increase, which consequently raises tobacco prices, is not the cause of worsening tobacco smuggling. Evidence shows that many people who smoke smuggled cigarettes are willing to pay more for brands not available domestically.

The most important factor in addressing tobacco smuggling or illegal trade is the enforcement capacity and efforts of the relevant authorities.

Furthermore, the argument that increasing tobacco taxes increases unemployment is also inaccurate. Jobs in the tobacco industry account for only 0.39% to 0.42% of total employment in the economy.

Raising taxes might reduce jobs in the tobacco industry but could shift jobs to other sectors. In addition, the government would have more revenue to reinvest in the economy – in areas like healthcare and education. And unlike tobacco, these sectors would increase productivity and national growth.

On the part of the Ministry of Health, in line with the World Health Organization, the Ministry of Health supports and fully agrees with the Ministry of Finance on several proposals in the draft Law on Special Consumption Tax (amended) to institutionalize and implement the Resolutions of the National Assembly and the Government, especially Resolution No. 20-NQ/TW of the Central Committee of the Communist Party of Vietnam on continuing to protect, care for, and improve the health of the people in the new situation.

However, to ensure closer adherence to the guiding principles and directions of the Party and State, and the requirements set forth in the National Strategy on Tobacco Harm Prevention attached to Decision No. 568/QD-TTg of the Prime Minister, the Ministry of Health proposes that the absolute tax rate on tobacco products should reach 15,000 VND/pack (20 cigarettes/pack) by 2030, in addition to the 75% proportional tax.

This approach would help achieve a tax rate of 65% of the retail price, close to the WHO recommendation (70-75% of the retail price), and help reduce tobacco use among men to 36% by 2030.