The Conference

Recently, the Vietnam Tax Consultants Association (VTCA) and Vietnam Chamber of Commerce and Industry (VCCI) jointly organized a conference on "Excise Tax - Harmonizing State budget revenue regulation and development of production and business" in Hanoi to contribute to realizing the objectives stated in the Prime Minister's Decision 508/QD-TTg issued in April 2022, which requires research and application of between the tax rate by ratio and the flat tax rate when developing a roadmap for a tax increase for tobacco products.

Harmonizing interests of the State, people and businesses

At the seminar, VCCI Deputy Secretary General Dau Anh Tuan said that excise tax has contributed to orienting the production and consumption of society; regulating consumer income; and increasing revenue for the state budget. However, in addition to the achieved results, the business community expects that excise tax needs to meet higher requirements such as ensuring a stable, favorable business environment and harmonizing the interests of the State, people and businesses.

According to Mr. Dau Anh Tuan, a good excise tax, in addition to orienting consumption behavior and increasing budget revenue, must take into account the following factors: feasibility, compliance, fair competition, reliability, predictability and consistency with international practices.

According to Ms. Nguyen Thi Cuc, Chairwoman of VTCA, excise tax increase to limit  cigarette consumption is necessary. Besides a reasonable tax policy, other measures should also be implemented in a synchronous manner such as information to all classes of people about the harmful effects of cigarettes; control of smuggled cigarettes; strictly implementing fines on the act of smoking in public places.

Ms. Nguyen Thi Cuc also said the tax increase on tobacco products should have a roadmap so that production and business enterprises can adjust and arrange their operation, both stabilizing production plans, contributing revenue and limit ing smuggled cigarettes, avoiding tax revenue loss, and protecting public health.

“We propose a plan to amend according to the roadmap as follows: in the first two years, we will apply the mixed tax method - relative and absolute, in addition to the 75% tax rate, the flat rate can be increased from VND1,000/pack. In the next two years, the flat tax rate can be increased from VND1,000/pack to VND1,500/pack. From the 5th year, it will be increased by VND2,000/pack,” said Ms. Nguyen Thi Cuc.

Le Thi Thuy Van, Deputy Director of the Institute of Financial Strategy and Policy (Ministry of Finance), said that the method of applying excise tax on cigarettes in the world is quite diverse (by percentage, flat or mixed rate), however, Vietnam has only applied the method of applying excise tax on cigarettes according to percentage. This method is revealing many shortcomings such as failing to keep pace with the inflation rate, encouraging the increase of cheap cigarettes available in the market, thereby increasing the accessibility and smoking for teenagers and increasing rates of secondhand smoke among children.

Meanwhile, the method of mixed tax is popular in many countries due to its benefits, but it is recommended that the excise tax by the mixed method should have a roadmap to ensure that the flat tax amount increasing over the years needs to correspond to the inflation rate.

Citing data from the World Health Organization, Ms. Dinh Thi Quynh Van, General Director of PwC Vietnam Auditing and Consulting Company, said that among the three methods, the number of countries choosing the flat tax method is the highest (66 countries), followed by the mixed tax method (61 countries) and percentage tax (47 countries). Compared with nearly 15 years ago (2008), the mixed tax method rose in the number of countries.

Tax increase and anti-smuggling problem

According to Chairman of the Vietnam Tobacco Association Ho Le Nghia, the increase of excise tax, if any, should consider the harmony between State budget revenue and the development of production and business. The Association recommended that law enforcement agencies should develop an appropriate roadmap and level of excise tax increase for tobacco products due to the fact that the Vietnamese market has many different price segments, avoiding creating opportunities for smuggled cigarettes, leading to tax revenue loss.

The Chairman of the Vietnam Tobacco Association said that instead of accelerating the increase of taxes and imposing new fees on legal tobacco products, we should focus on effectively combating smuggled cigarettes.

Mr. Ho Le Nghia said that smuggled cigarettes are currently a serious problem in the cigarette market in Vietnam. The Vietnam Tobacco Association has supported and closely worked with anti-smuggling agencies from the central to local levels to promote the prevention of contraband cigarettes.

“The association proposes to the State and relevant agencies to apply stronger and more drastic measures and use part of the funds from the Tobacco Harm Prevention Fund to accelerate the fight against smuggled cigarettes, thereby increasing the budget revenue from the legal tobacco industry, instead of accelerating tax increases and imposing new fees on legal tobacco products," Nghia said.

According to Dr. Nguyen Dinh Cung, former Director of the Central Institute for Economic Management, a tax increase is a tool, but a tax rise may boost smuggling which will reduce legal production and consumption, thereby reducing tax revenue. In addition, the spiral of tax increase - price increases may push smokers to switch to cheap products that affect health. Tax policies should also regulate consumption behavior, helping users gradually switch to less harmful products thanks to technological reforms, less harmful cigarettes or minimizing negative impacts on the general environment and non-smokers.

Mr. Young Jae Song - General Director of British American Tobacco (BAT) - Vinataba Joint Venture Company, also suggested that excise tax increase should not be conducted in the next one to two years, and the State should consider a reasonable roadmap with an appropriate increase level to avoid the rocket, causing market instability, affecting business environment and increasing illicit cigarettes as well as social security problems.