Tax increase on tobacco must be backed by crackdown, control of smuggling: experts

Tuesday, Mar 22, 2022 10:53

Any increase in special consumption tax on tobacco must be accompanied by a crackdown on cigarette smuggling, experts say. — VNA/VNS Photo

Any increase in special consumption tax on tobacco must be accompanied by a crackdown on cigarette smuggling, experts have said.

Some National Assembly members discussing changes to eight laws at a recent extraordinary meeting, including the Special Consumption Tax Law, proposed a hike in the tax on tobacco and beverages.

They said the tax increase would increase the Government’s revenues and reduce negative impacts on society.

But others said the increase in tax needed to be studied carefully and it should only be hiked when tobacco smuggling is well controlled.

Besides, it is important to assess the proposal carefully to see how the special consumption tax increase will impact society and the economy, especially when businesses in all sectors and common people including farmers face many economic difficulties caused by the COVID-19 pandemic.

Nguyen Manh Cuong, deputy chairman of the National Assembly’s Judicial Committee, said the tax increase requires careful assessment of its likely impacts.

He too stressed that an increase in the special consumption tax on tobacco must go hand in hand with the fight against smuggling.

Increasing tax without fighting smuggling will be counterproductive, and cause an increase in tobacco smuggling since profits from contraband cigarettes could be higher than from drugs, he explained.

The tax hike and resultant increase in tobacco prices would increase demand for contraband tobacco, he warned.

Many countries around the world have seen more smuggling after a tax hike on tobacco.

For instance, in Malaysia, tobacco price strongly surged after the Government increased the tax by 40 per cent in 2015, causing more illicit tobacco trade.

A report from Oxford Economics said that illicit tobacco trade jumped from 37 per cent to 52 per cent one year after the new tax was applied.

The total amount of tax evaded by the illicit trade in cigarettes in 2018 was over RM5.1 billion, which equates to over 2.9 per cent of Malaysia’s total tax receipts that year, the report said.

The same thing happened in New Zealand with the volume of smuggled cigarettes doubling two years after a tax hike despite authorities’ best efforts to prevent smuggling.

Examples from various countries show that a sudden increase in tax has negative impacts on society and the economy, and so Viet Nam should carefully consider the tax increase especially since smuggling is still common, experts said.

Police in Binh Phuoc Province seize a man transporting 10,000 illegal boxes of cigarettes.

In late 2021 police in the southern province of Binh Phuoc seized nearly 10,000 boxes of smuggled tobacco. This was just one of many cases of smuggling since that time.

In fact, the smuggling problem in recent time has become complicated in many provinces along the border like An Giang, Tay Ninh, Binh Phuoc, Long An, Dong Thap, and Kien Giang.

In these areas, which have long borders and many crossings and trails, it is always a challenge to prevent people and vehicles from crossing the border.

Smugglers transport large quantities of cigarettes by various means such as road and waterway.

When to increase?

To achieve optimal efficiency, insiders and experts suggest 2023-25 is the best time to increase the tax.

They pointed out that by then the smuggling would be better controlled and the impacts of COVID on the economy would have gone away.

In Viet Nam, smuggled cigarettes, which account for 20 per cent of total sales, are cheaper since they do not have to pay any taxes or fees and freely available at retail outlets and wholesale markets.

If the tax is hiked leading to a sudden increase in tobacco price, many people will choose to buy the cheaper smuggled cigarettes, affecting their health in the process.

Legitimate businesses will for sure be affected and tax collections from them will decline.

Farmers, who have been badly hit by COVID, will be affected further as manufacturers cut production when buyers turn to cheap smuggled cigarettes.

Legal production and consumption will fall sharply, the market share of smuggled cigarettes could jump to 30 - 40 per cent and even higher down the line.

The tax hike must therefore be effected only when smuggling is controlled, experts stressed.VNS

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