VietNamNet Bridge – The Ministry of Health has proposed to raise the tax rates on tobacco to 105% in 2015 and 145% in 2018.

The Ministry of Finance is about to submit the draft amendments to the Law on Luxury Tax to the National Assembly, including tobacco products.

Accordingly, the Government proposed the luxury tax rate on cigarettes to be 70% for the period from 1/1/2016 to 31/1/2018 and 75% from 01/01/2019.

The rates are lower than the original proposal of the Ministry of Finance, up by only 5% for the 2016-2018 period, and the starting time is also later than the original proposal.

Based on this proposal, the increase of cigarette prices in three years (2016-2018) would be 2.9% or under 1% a year while Vietnam's GDP growth is forecast to be be more than 5%/year during this time.

"This means that the real increase of tobacco prices is lower than the growth rate of GDP, so the purchasing power of tobacco will still increase. Such an increase is too low. The goal of raising tobacco taxes to reduce cigarette consumption will not be achieved," said Ms. Pham Thi Hoang Anh, Director of HealthBridge Canada in Vietnam.

This is the third time that tobacco taxes have been adjusted in the last 10 years. Luong Ngoc Khue, a senior official from the Ministry of Health, said that it was necessary to learn from experience from the increase of tobacco taxes in 2006 and 2008.

In 2006, the luxury tax rates on tobacco products of 25%, 45% and 65% were given the common rate of 55%. Since 2008, this rate has increased by 10%. As a result, the real price of cigarettes actually rose in the first tax hike and fell in the following hike.

"The increase in luxury tax of 10% in 2008 does not guarantee a reduction of tobacco consumption in the long term. That means the proposed tax increase of only 5% will not be able to help reduce tobacco consumption as expected," said Khue.

The Ministry of Health proposed two options. Firstly, in order to achieve the national target in reducing tobacco consumption, in 2015 the luxury tax rate will be 105% and in 2018, 145%. This is considered the optimal increase. Secondly, to keep the purchasing power of tobacco constant, the adjusted tax rate should be 85% by 2015 and 105% by 2018.

With the second option, the increase of retail prices is close to the actual income growth. It is estimated that the smoking rate for men must fall from 47.4% in 2014 to 42.1% in 2020 to achieve nearly two-thirds of the target set in the National Strategy for Prevention of Adverse Effects of Cigarettes to 2020. Accordingly, the male smoking rate would drop to 39% in 2020.

In fact, even in a difficult economic context, the performance of the tobacco industry is still very good. As reported by the Vietnam Tobacco Corporation in 2013, the consumption of cigarettes was more than 102% of the annual plan, up 7.7%.

Lessons learned from Thailand show that regular tobacco tax increase is a win-win policy and does not affect the tobacco industry. From 1994 to 2012, the Thai government raised the luxury tax on tobacco 10 times. Thus, the price of cigarettes increased from 15 Bath/pack to 65 Bath/bag and the smoking rates among men decreased from 59% in 1991 to less than 42% in 2011.

Tobacco smoke contains over 7,000 chemicals, including 70 carcinogens. Tobacco use causes 25 diseases such as lung cancer, laryngeal cancer, oral cavity cancer, skin cancer, heart disease and others. Smoking causes 90% of lung cancer cases, 75% of chronic obstructive pulmonary disease cases, and 25% of ischemic heart disease cases.

About 100 million people died from diseases related to tobacco use around the world in the 20th century. Each year tobacco causes nearly 6 million deaths and the number is predicted to increase to more than 8 million people in 2020. Seventy of these deaths will occur in developing countries.

Le Ha