Increased risk of cigarette smuggling
Increasing the special consumption tax (SCT) on tobacco is considered necessary to improve public health and increase budget revenue, in line with international practice. However, some experts say the sudden increase needs to be carefully considered.
Reality over many years shows that there is a close relationship between tax increases and increased cigarette smuggling. In 2016, when the excise tax increased from 65% to 70%, the amount of smuggled cigarettes destroyed increased from 6.8 million packs (in 2016) to nearly 7.5 million packs (in 2017).
Similarly, in the 2019-2021 period, each 5% tax increase has led to an increase in smuggled cigarettes of at least 10% after each period. If a 40%-100% tax increase is applied, it is predicted that smuggled goods may increase, causing a large loss of revenue to the budget.
Ms. Nguyen Thi Cuc - Chairwoman of the Vietnam Tax Consultants Association (VTCA) said that both tax increase options in the draft Law on Special Consumption Tax (amended) will lead to a decrease in legal cigarette production and a sharp increase in smuggled cigarettes. Ms. Cuc estimated that by 2030, the amount of smuggled cigarettes could increase by 205% - 230% compared to 2025, equivalent to 22-24 billion cigarettes.
The Chairman of the Vietnam Tax Consulting Association commented that the sudden tax increase not only caused difficulties for the legal tobacco industry but also caused many consequences. Legal tobacco production is forecast to decrease sharply, possibly up to 70% by 2030. This leads to a decrease in revenue, business bankruptcy, and job loss for thousands of workers in the industry.
What is the solution to balance the goals?
Faced with this situation, experts have suggested that the tax increase roadmap should be adjusted to reduce negative impacts. A gradual increase roadmap, for example an increase of VND2,000 every 2-3 years, would give businesses time to adapt, stabilize production, and minimize the risk of bankruptcy.
In addition, strengthening anti-smuggling work is very important. Lieutenant Colonel Le Thien Thanh, from the Border Guard Command, said that it is necessary to amend Decree 98/2020/ND-CP to strictly punish acts of smuggling and transporting contraband cigarettes. In addition, management agencies also need to increase their forces and equip themselves with modern tools to control the border more effectively.
Additional measures such as raising public awareness of the harmful effects of smuggled cigarettes and supporting legal tobacco businesses to change their business models should also be implemented in parallel. Only with synchronous solutions can the goals of increasing budget revenue and reducing tobacco consumption be achieved without causing too much damage to the economy.
Mr. Ho Le Nghia - Chairman of the Vietnam Tobacco Association, the mixed tax increase plan with a gradual increase roadmap, as proposed by 2,000 VND in 2026, 2028 and 2030, will ensure a balance between policy objectives. A reasonable roadmap not only helps minimize negative impacts but also creates conditions for businesses and management agencies to have time to prepare, thereby building a healthy and sustainable market.
