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Overview of the Discussion. Photo: Organizing Committee

Tax increases are necessary, but smuggled cigarettes will flood in.

Speaking at the seminar “Increasing special consumption tax and combating cigarette smuggling - issues raised” on November 19, Ms. Nguyen Thi Cuc - President of the Vietnam Tax Consulting Association, affirmed that increasing special consumption tax (SCT) is necessary and should be applied in a mixed manner.

According to the Draft Law on Special Consumption Tax (amended), the Ministry of Finance proposed two options:

Option 1: In 2026, the tax rate remains at 75% and an additional VND2,000/bag is added. From 2027 to 2030, the tax will increase by VND2,000/bag each year. By 2030, the absolute tax rate will be VND10,000/bag.

Option 2: In 2026, when the revised Law on Special Consumption Tax officially takes effect, along with maintaining the current tax rate of 75% on the selling price, the absolute tax rate on cigarettes is 5,000 VND/pack.

Each year after that, the tax will increase by 1,000 VND/bag. By 2030, the tax will increase to 10,000 VND/bag.

According to Ms. Cuc, the main goal of increasing the tax is to reduce the rate of smokers, especially young people, to protect public health and reduce the risk of serious diseases such as lung cancer and respiratory diseases.

However, Ms. Cuc warned that increasing the price of legal cigarettes could create opportunities for smuggled cigarettes, which are not taxed and are not quality controlled, to flood the market. This could reduce the effectiveness of the policy as legal cigarette consumption decreases but smuggled cigarettes increase.

“Smuggled cigarettes can avoid all types of taxes at the import stage, including: value added tax, special consumption tax, import tax, not to mention taxes if legally traded domestically. Therefore, when the special consumption tax increases, it will directly impact legal cigarettes while smuggled cigarettes are not affected, leading to a decrease in legal production and creating favorable conditions for smuggled cigarettes to enter,” Ms. Cuc stated her opinion.

Citing research from organizations, Ms. Cuc said: It is necessary to consider possible scenarios when the special consumption tax on cigarettes increases too quickly in Vietnam.

According to some studies, both options for increasing the special consumption tax according to the draft Law will reduce the total amount of tobacco consumption by about 7% by 2030. The output of legal tobacco in both options will decrease sharply by 2030. Specifically, legal tobacco will decrease by 30% in option 1 (equivalent to a decrease of 28 billion cigarettes) and decrease by 36% in option 2 (about 31 billion cigarettes) compared to 2025 before the tax increase. This will cause severe damage to the tobacco industry, businesses may go bankrupt in a short time when revenue drops by about 32%-35%.

On the contrary, the amount of smuggled cigarettes will increase sharply under both tax increase options proposed by the Ministry of Finance. By 2030, smuggled cigarettes could increase by 205% under option 1 (about 22 billion cigarettes) and 230% under option 2 (equivalent to 24 billion cigarettes) compared to 2025.

According to Ms. Cuc, option 1 of the draft is a more reasonable approach, minimizing negative impacts on related entities compared to option 2. However, the tax increase roadmap should be spread out more appropriately, not continuously increasing every year, to help the legal tobacco industry have enough time to transform and adapt.

Tax increase roadmap should be extended

MSc. Trang A Duong, Member of the National Assembly's Ethnic Council, said: Both options proposed by the Ministry of Finance are too sudden for businesses and have negative impacts on the tobacco industry. Amending the Special Consumption Tax Law needs to ensure harmony among factors: Public health, social security, regulating state budget revenue, stabilizing business production, jobs for workers, contributing to controlling smuggled products, illegal production...

From this perspective, Mr. Trang A Duong said that it is necessary to conduct in-depth research on increasing special consumption tax and combating cigarette smuggling, thereby making some recommendations to promote the effectiveness of tax policies, especially to limit the sudden increase in cigarette smuggling activities in the coming time.

According to this person, there is a complete connection between the tax increase and the increase in smuggled cigarettes. Looking back at 2016, Vietnam increased the tax from 65% to 70% and also in this year, the number of smuggled cigarettes destroyed increased from 6.8 million packs in 2016 to nearly 7.5 million packs in 2017; In 2019, when the tax increased from 70% to 75%, the number of smuggled cigarettes destroyed increased from nearly 1.4 million packs in 2019 to more than 5.1 million packs in 2020 and to nearly 6.6 million packs in 2021.

“The tax increase is of course not the only reason leading to the increase in smuggled cigarettes, however, when reviewing the above milestones, it can be seen that the tax increase is one of the important factors leading to the increase in smuggled cigarettes. If the tax increase is carried out in a suitable manner, it will reduce an important risk of increasing the illegal trade of tobacco products,” Mr. Duong noted.

To effectively support the fight against cigarette smuggling after the tax increase, Mr. Duong said that the tax increase roadmap should be extended, the frequency of tax increase should be 2 to 3 years/time so that market management agencies have more time to plan and prepare forces to respond to the wave of smuggling that is predicted to flood into Vietnam after the tax increase.

Sharing the same view, Lieutenant Colonel Le Thien Thanh, Department of Drug and Crime Prevention (Border Guard), also agreed with the tax increase but emphasized that the increase roadmap should be extended so that management forces, such as the Border Guard, have time to prepare to deal with the increased smuggling situation. He proposed amending Decree 98/2020/ND-CP to strictly punish cigarette smuggling, creating a healthy competitive environment for legal businesses.

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