Higher Tobacco Excise Tax: Balancing Interests for All Stakeholders

In Vietnam, tobacco is grown on 12,000 ha, offering high productivity and stable rural jobs. The Ministry of Finance is considering raising the special consumption tax on tobacco to curb its use, which has received broad support.

VND26,000 billion of tobacco tax in 2023

According to the Vietnam Tobacco Association (VTA), the tobacco industry currently generates approximately 1.1 million jobs, both direct and indirect. This includes about 10,000 factory workers, 8,000 employees in distribution, 110,000-120,000 tobacco farmers, and around 1 million retail stores.

Mr. Nguyen Chi Nhan, General Secretary of VTA, said that VTA members paid a total of VND103,108.9 billion to the State Budget in the 2019-2023 period, an increase of 15.1% compared to the 2014-2018 period. In 2023 alone, the industry paid VND26,000 billion to the State coffers.

At a recent workshop on the "Special Consumption Tax on Tobacco Products," a Chi Lang district leader reported that in 2023, the district had 920 ha of tobacco, producing 2,018 tons and generating over VND111.8 billion in revenue. For 2024, the area increased to 948 ha, with a projected yield of 2,158 tons and revenue exceeding VND114.3 billion. Tobacco was purchased at stable prices of VND 50,000-60,000 per kilogram.

Allowing businesses time to adapt

Chairing a recent meeting of the Government Standing Committee on the draft amended Law on Special Consumption Tax, Prime Minister Pham Minh Chinh emphasized that raising the excise tax on tobacco affects many industries and people. While it’s a tool to guide and limit consumption, it needs to align with Vietnam’s specific conditions and needs.

He emphasized that policies should balance the interests of businesses, individuals and the state to prevent tax loss. They must also align the goals of promoting production and socioeconomic development with reducing the negative health impacts of certain goods.

According to economic experts, amending the Law on Special Consumption Tax on tobacco is necessary to properly implement Party and State policies on caring and improving people's health, match international practices and stabilize State Budget revenue.

The Ministry of Finance proposed two options for increasing the excise tax on tobacco products. The first option is to raise the tax by VND2,000 per pack of cigarettes annually. The second is to increase the tax by VND 5,000 per pack in 2026, with an additional VND1,000 per pack added each subsequent year.

Raising the excise tax on cigarettes should be gradual, with a reasonable increase and clear roadmap to ensure the stability of production and business for enterprises and individuals, Nhan said. He proposed an absolute tax of VND1,000 per pack of 20 cigarettes in 2026. This should increase by VND500 per pack each year, or VND1,000 per pack every two years, reaching VND 3,000 per pack by 2030.

This proposed plan will create a reasonable tax increase, support tobacco businesses to have time to adapt and stabilize production, thus minimizing negative impacts on workers' jobs and ensuring social security, he explained. At the same time, this plan will also help restrict smuggled cigarettes to ensure sustainable budget growth goals in the long run.

Ms. Nguyen Thi Cuc, President of the Vietnam Tax Consultants' Association (VTCA), said that the choice of tax increase plan and roadmap must ensure harmonized interests of public health, business performance and State Budget.

By Hien Le, Vietnam Business Forum