At a recent workshop, Dr. Can Van Luc, Chief Economist of BIDV and Director of BIDV Training and Research Institute, shared the global economic picture and its impacts on Vietnam. Mr. Luc commented that businesses are still facing many difficulties due to the instability of the global macro economy, the trade-technology war, high input and logistics costs, uneven and unsustainable recovery of orders, etc.

Meanwhile, both tax increase options in the Draft Law on Special Consumption Tax for industries such as tobacco, beer, alcohol, soft drinks, and double-cabin pickup trucks lead to very high tax increases in a short period of time, causing great concern about the stability of the domestic manufacturing industry.

Regarding tobacco products, when looking at international experience, Ms. Dinh Thi Quynh Van - Chairman of PwC Vietnam said that in 2015, the Malaysian Government increased tobacco tax by 40%, immediately in 2016 the legal tobacco market share in this country decreased by 26%, while smuggled cigarettes increased by nearly 40%. Although the tax was only increased once in 2015, in 2020, the legal tobacco market share continued to decrease by 42% compared to before the increase, smuggled cigarettes accounted for 64% of the market share in this country.

Malaysia and Vietnam have many economic similarities. Therefore, if Vietnam applies a sudden high tax increase (option 1: tax increase by 42%, and option 2: tax increase by 100%) and increases every year as in the Draft, it will lead to more consequences as analyzed above.

With experience in the tobacco industry and the fight against smuggled cigarettes in Vietnam and East Asian countries, Ms. Do Hoang Anh - Director of External Relations of BAT East Asia emphasized: "When making policies, we need to consider carefully because once the scenario of smuggled cigarettes has occurred like in Malaysia, there is no turning back."

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

Previously, the proposals in the Draft Law on Special Consumption Tax with an absolute tax increase of VND10,000/pack by 2030 received many negative comments from the business community and associations, as it put heavy pressure on businesses and the legal market, as well as creating a "price shock" for consumers and unintentionally pushing them to smuggled cigarettes.

According to the Institute for Strategy and Financial Policy (NIF), if option 2 of the Draft is applied, by 2030, legal cigarette production could decrease by 30% to 43%. At the same time, 30% to 70% of consumers will switch to smuggled cigarettes, resulting in a loss of VND10,900 - 20,700 billion in tax revenue for the state budget. This trend is similar to the PwC analysis model: the Draft's tax increase options will cause legal cigarette production in Vietnam to decrease by more than 70% by 2030 compared to the present, smuggled cigarettes could increase to 50 billion cigarettes and the budget loss could reach VND40 trillion by 2030.

The Vietnam Tobacco Association and the business community proposed that the National Assembly stipulate the absolute tax rate as follows: The absolute tax rate increases by VND2,000/pack every two years from 2026 and reaches a maximum of VND6,000/pack in 2030.

Stakeholders hope that the National Assembly as well as Committees such as the National Assembly Standing Committee 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 special consumption tax on tobacco.