At a recent seminar, Dr. Can Van Luc, Chief Economist of BIDV and Director of the BIDV Training and Research Institute, shared an overview of the global economy and its impact on Vietnam. Dr. Luc noted that businesses continue to face many difficulties due to the instability of the global macroeconomic environment, trade and technology wars, high input and logistics costs, and uneven and unsustainable order recovery…

Meanwhile, both proposed tax increases in the Draft Law on Special Consumption Tax for sectors such as tobacco, beer, soft drinks, and double-cab pickup trucks would result in very high tax increases in a short period, raising serious concerns about the stability of domestic production.

Regarding tobacco products, looking at international experience, Ms. Dinh Thi Quynh Van - Chairman of PwC Vietnam - stated that in 2015, the Malaysian government increased tobacco tax by 40%. Immediately in 2016, the market share of legal cigarettes in the country decreased by 26%, while smuggled cigarettes increased by nearly 40%. Even with only one tax increase in 2015, by 2020, the market share of legal cigarettes continued to decrease by 42% compared to before the increase, while smuggled cigarettes accounted for 64% of the market share in the country.

Malaysia and Vietnam share many economic similarities. Therefore, if Vietnam implements a sudden and significant tax increase (Option 1: a 42% increase, and Option 2: a 100% increase) and increases it annually as proposed in the Draft, it will lead to more serious consequences, as analyzed above.

With experience in the tobacco industry and in combating tobacco smuggling in Vietnam and other East Asian countries, Ms. Do Hoang Anh - Director of External Relations for BAT in East Asia - emphasized: "When formulating policies, careful consideration is needed because once a tobacco smuggling scenario like the one in Malaysia occurs, there is no turning back."

Ms. Vu Lan Huong, Deputy Director of Thang Long Tobacco Company, further explained that smuggled cigarettes already hold a large market share. If the special consumption tax increases drastically, the price difference between legal and smuggled cigarettes will become too large, creating a strong impetus for the informal market.

Previously, proposals in the Draft Law on Special Consumption Tax, with an absolute tax increase of 10,000 VND/pack by 2030, received much criticism from the business community and associations, as they would put heavy pressure on businesses and the legitimate market, as well as create a "price shock" for consumers and inadvertently push them towards smuggled cigarettes.

According to the National Institute for Financial Strategy and Policy (NIF), if Option 2 of the Draft is implemented, the production of legal cigarettes could decrease by 30% to 43% by 2030. Simultaneously, 30% to 70% of consumers would switch to smuggled cigarettes, resulting in a tax revenue loss of VND 10,900 - VND 20,700 billion for the state budget. This trend is similar to the analysis model by PwC: the proposed tax increases in the Draft would cause the production of legal cigarettes in Vietnam to decrease by more than 70% by 2030 compared to the present, smuggled cigarettes could increase to 50 billion units, and the budget loss could reach VND 40 trillion by 2030.

The Vietnam Tobacco Association and the business community have petitioned the National Assembly to stipulate the following absolute tax rates: The absolute tax rate will increase by 2,000 VND/pack every two years starting from 2026 and reach a maximum of 6,000 VND/pack in 2030.

The stakeholders hope that the National Assembly, as well as committees such as the Standing Committee of the National Assembly and the Economic and Financial Committee, will listen to the proposals of the Vietnam Tobacco Association and the business community, and carefully consider the roadmap for increasing excise tax on tobacco.