Adjusting tobacco excise tax must aim to increase sustainable budget revenue.

Increasing excise tax, including on tobacco, must have a roadmap, especially increasing propaganda activities to minimize negative impacts caused by tax increases, thereby achieving sustainable budget revenue.

This opinion was expressed by Mr. Hoang Van Cuong - Member of the Finance and Budget Committee of the Congress presented at the recent seminar "Considering the roadmap when amending special consumption tax" on National Assembly Television.

The guests at the Discussion all agreed that taxes should not be increased too suddenly to avoid negative impacts on consumers, businesses and budget revenue.

According to Mr. Cuong, first of all, Vietnam needs to strictly manage tobacco sales channels. If we strictly manage tobacco sales channels, we cannot sell smuggled cigarettes easily. If consumers cannot easily access smuggled cigarettes, we will limit tobacco consumption.

“I think we have to use a combination of measures, in which the disadvantage of tobacco access will also change consumers’ behavior. I think implementing a series of comprehensive measures to have a comprehensive impact, thereby achieving the goal of limiting tobacco use, rather than just focusing on a single tool of increasing taxes,” Mr. Cuong emphasized.

Mr. Cuong's opinions, in some respects, are similar to those of experts. Accordingly, some opinions agree that amending the Law on Special Consumption Tax (SCT) needs to ensure harmony among factors: Public health, State budget revenue, business production, social security for workers and farmers, and control of smuggled products. Therefore, it is necessary to increase the SCT on tobacco appropriately, with a moderate increase roadmap to avoid causing shock leading to negative consequences.

Mr. Hoang Van Cuong - Member of the National Assembly's Finance and Budget Committee

It is known that currently, the two options proposed by the Draft Law on Special Consumption Tax (amended) have the current tax rate of 75% being kept the same and an absolute tax added towards the goal of increasing by 10.000 VND per pack of cigarettes by 2030.

Consider choosing the right option to have a reasonable itinerary

Sharing about the above options at the seminar, Ms. Nguyen Thi Cuc - President of the Vietnam Tax Consulting Association - said that the two options are similar in that by 2030, they will both increase to VND10.000 when applying the mixed tax calculation method. "The problem is that such an increase is relatively high compared to the previous roadmap when we adjusted the tax from 2019". Ms. Cuc also emphasized that when increasing taxes, we must consider the impact on the raw material and production areas of the tobacco industry, especially in the post-Covid-19 period, when businesses are still facing many difficulties in ensuring jobs for workers.

Ms. Nguyen Thi Cuc, Chairwoman of the Vietnam Tax Consulting Association, emphasized that when increasing taxes, it is necessary to consider the impact on raw material and production areas of the tobacco industry.

When analyzing the two options of the Draft Law on Special Consumption Tax (amended), Ms. Cuc said that option 1 is more reasonable than option 2 because option 1 (75% + 2.000 VND/bag) has the advantage of increasing steadily every year instead of suddenly increasing like in option 2 (75% + 5.000 VND/bag). However, both options have the rate of "absolute tax plus 75% according to relative tax, so the total mixed tax rate is still high".

Meanwhile, citing the impact assessment report of The financial, Mr. Cuong said that the tax increase as proposed by the two options could increase the tax rate in the selling price of cigarettes. For example, the current tax rate is about 36%, by 2030 it will be up to 59,4%, an increase of about 23%. Meanwhile, consumers could reduce from 42,7% as at present to 38% in 2030 (a decrease of 4%). Thus, the tax increases by 23% but consumption only decreases by 4%. Meanwhile, according to forecasts, by 2030, the budget will collect 39.000 billion VND, compared to the current level of 23.000 billion VND in special consumption tax. If this figure is achieved, the budget revenue will really be a great success. "Of course, I have not verified this figure yet. I think this number may not be reliable enough because consumption decreased by 4%, the tax ratio in price only increased by 23%, so how could the total tax increase by more than one and a half times?", Mr. Cuong stated his opinion.

Mr. Cuong added that when considering tax options, we must also consider options for shifting production activities so that people can still have a good livelihood and not negatively affect the overall stability of economic and social life. "Only then will our tax reform achieve its goals," he said.

Tobacco farmers have signed contracts with tobacco factories, stabilizing output for many years. Now, if they suddenly switch to a new product without output, it will be a big challenge," Ms. Cuc commented.

Therefore, according to Ms. Cuc, it is clear that there needs to be a long-term plan to stabilize the lives of people in difficult areas, where family income depends largely on tobacco, while crop conversion is not easy.

Regarding the impact on budget revenue from tobacco tax, Mr. Cuong added that special consumption tax is a tax to regulate consumer behavior, but in principle, tax adjustment must aim to increase revenue. "Of course, increasing budget revenue is not the main goal, but when increasing taxes, that principle must be achieved." Mr. Cuong emphasized that if tax adjustment reduces budget revenue because the tax increase causes a sharp decrease in legal consumption output, this issue must be reconsidered, because then the goal of increasing budget revenue cannot be achieved while the situation of smuggled cigarettes cannot be controlled.

From the above analysis, the guests at the discussion said: Goverment It is necessary to carefully consider the need to increase the excise tax on tobacco appropriately, with a moderate increase roadmap to avoid causing shock leading to negative consequences for budget revenue, business activities of enterprises, social security of workers and farmers in raw material growing areas...

Therefore, Mr. Cuong and the guests recommended that taxes should not be increased too suddenly as currently proposed and that there should be a suitable roadmap so that consumers and businesses have time to transition, avoiding affecting long-term budget revenue.