Reducing health and environmental costs hurts GDP
Every year, the consumption of products that are harmful to health and the environment causes a lot of damage to health and the environment, and the associated costs. These costs are huge and urgently need to be reversed. Minimizing these costs also contributes to increasing GDP by reducing losses.
Meet the spending needs for some sustainable development programs
According to calculations by the Central Institute for Economic Management (February 2025), increasing taxes on tobacco products will help ensure funding for new sustainable development goals. For example, revenue can supporteducation subsidies (school supplies) or health subsidies for poor households. Large cities such as Hanoi and Ho Chi Minh City have all seen significant increases to meet spending needs for a number of SDG programs.
According to Mr. Dao The Son - an economist from the Global Public Health Organization (Vital Strategies), reducing medical and environmental costs will help transfer money from the state budget and people to other consumption for the economy, instead of using it for medical treatment and environmental cleaning costs. This can increase total domestic consumption demand, contributing to promoting economic growth. He said that according to a report by the Health Economics Science Association, the consumption of tobacco and other harmful products is causing huge losses in medical costs of up to VND108,000 billion and environmental costs of up to VND99,000 billion for Vietnam, equivalent to a total of more than 2% of GDP. Increasing special consumption tax will help reduce the consumption rate, thereby reducing the burden of costs and supporting growth through increasing total domestic demand.
At the micro level of household consumption, the use of tobacco, alcohol and sugary drinks negatively affects poverty and expenditures that are beneficial to household economic development.
According to a study by the Development and Policy Research Center (DEPOCEN), tobacco consumption crowds out spending on education, especially among low-income households, affecting both current poverty and the economic development and purchasing power of households in the future. A study by the Vietnam Center for Economic and Strategic Research in 2023 showed that tobacco consumption increases multidimensional inequality among households in Vietnam.
Thus, if tax increases help households regulate consumption, the reduced consumption from cigarettes, alcoholic beverages, and sugary soft drinks will be transferred to other expenses, not only not affecting the total demand of the economy, GDP, but also helping to increase the sustainability of development. Households can increase spending on education and training, increase savings to serve investment and business activities, and develop the private economy (by the household owner or for the economy through the banking and financial system).
At the same time, tax revenues can be used for socio-economic development programs aimed at reducing poverty and improving equality. Analysis by the Central Institute for Economic Management (February 2025) shows that using revenue from special consumption tax for reasonable spending programs serving sustainable development goals can help reduce the poverty rate and improve the income inequality index (Gini coefficient) for Vietnam.
Tools to help the economy grow healthier
Directive No. 05/CT-TTg dated March 1, 2025 of the Prime Minister on key tasks and solutions, breakthroughs to promote economic growth and accelerate disbursement of public investment capital, ensuring the national growth target of 8% or more in 2025 clearly demonstrates the guiding spirit: development but still must ensure social security, health, environment, not accept to trade society and environment for purely economic benefits; have priority strategies and spearhead industries such as science, technology, innovation at the same time as developing high-quality human resources, increasing labor productivity.
According to experts, the special consumption tax policy can become an important tool to contribute to achieving the objectives of the directive, because it has the role of regulating consumption towards improving health, ensuring social security and the environment. Improving health is also a key factor to help the workforce ensure physical strength, intelligence and high productivity. Meanwhile, the regulatory impact of the special consumption tax also contributes to gradually transferring the total resources of society to key industries.
Mr. Dao The Son said that as a developing economy with great potential, Vietnam can continue to maintain relatively high growth in the period up to 2030. Accordingly, people's income can be significantly improved, helping to increase consumer demand for goods in general, as well as increasing budget revenue from special consumption tax.
It is estimated that with all current options proposed by the Ministry of Finance, the Ministry of Health and organizations such as the World Health Organization, budget revenue from special consumption tax will increase. This increased budget will not only help create a basis for spending on health goals but also create a common basis for investment in socio-economic development in general, promote economic growth and ensure inclusive sustainable development (including reducing the poverty rate and income inequality). The increase in budget revenue from special consumption tax also ensures a good reduction in the possibility of budget deficit, in the context of the economy needing to increase investment in the country's major socio-economic programs.
“Increasing special consumption tax is not a barrier to growth, but a tool to help the economy develop in a healthier, more efficient and more sustainable direction. In the context of Vietnam aiming for strong GDP growth and an era of development, early implementation of appropriate tax measures will be the key to realizing long-term development goals,” Mr. Son affirmed.
Cigarette prices in Vietnam are very low.
Since 2019, Vietnam has applied a special consumption tax rate on tobacco at 75% of the factory price. The tobacco tax rate calculated on the retail price (including special consumption tax and value added tax) is only 36%, much lower than the average of middle-income countries at 59%, and only half of most ASEAN countries. Meanwhile, according to WHO recommendations, the tax rate on tobacco should reach 70 - 75% of the retail price.
WHO research shows that the price of a pack of the most popular brand of cigarettes in Vietnam is only about 0.9 USD/pack. With this price, cigarette prices in Vietnam rank 15th, near the lowest, among 19 countries in the Western Pacific region.
There are up to 40 cigarette brands on the market with retail prices under 10,000 VND/pack of 20 cigarettes, many brands are priced at only 7,000 VND to 8,000 VND/pack of 20 cigarettes. With such low retail prices, cigarettes are very accessible to low-income people and new smokers, including children and adolescents.
Source: https://baolaocai.vn/tang-thue-tieu-thu-dac-biet-giup-cac-ho-gia-dinh-phan-bo-tieu-dung-tot-hon-post403082.html
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