The Vietnam Tax Consultants Association (VTCA) has just sent a document to the National Assembly's Finance and Budget Committee to comment on the draft Law on Special Consumption Tax (amended), which includes content related to increasing taxes on cigarettes.

According to the draft Law, for tobacco products, in addition to the current 75% tax rate, an absolute tax rate will be added according to the roadmap to form a mixed tax rate.

Two proposed options include:

Option 1, from 2026 increase 2,000 VND/bag each year, by 2030 the total increase is 10,000 VND/bag.

Option 2, from 2026 increase by 5,000 VND/bag, from 2027-2029 increase by 1,000 VND/bag each year, by 2030, total increase by 10,000 VND/bag.

The Vietnam Tax Consulting Association noted that in some countries, the special consumption tax on cigarettes has increased dramatically to reduce the number of smokers and increase state budget revenue, but in reality, the target has not been achieved because consumers have switched to smoking smuggled cigarettes, domestic factories have encountered difficulties, and state budget revenue has decreased.

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Increasing special consumption tax on tobacco aims to limit consumption and ensure public health. Photo: Binh Minh

Specifically, in 2015, Malaysia increased taxes by about 40%; from 2016 to 2018, taxes were increased twice (from 5% to 10%). Five years after the tax increase, by 2020, cigarette retail prices increased by 25%, the amount of legal cigarettes decreased by 55%, and smuggled cigarettes exploded, accounting for 65% of the market share. The three largest cigarette manufacturers closed factories in Malaysia; budget revenue decreased after the tax increase. Meanwhile, the number of smokers did not decrease.

Returning to Vietnam, many opinions suggest considering and calculating the option of increasing absolute tax and spacing out the increase time. Instead of increasing annually, it should be increased every 2 years so that by 2030, the absolute tax on cigarettes will increase by about 5,000 VND/pack.

If the above proposal is not accepted, the Vietnam Tax Consulting Association recommends choosing option 1 of the draft Law: From 2026, increase by 2,000 VND/bag each year, by 2030 the total increase is 10,000 VND/bag.