A man buys a pack of cigarettes from a mobile vendor in HCM City. Experts say the special consumption tax on tobacco products, proposed to increase from 65 per cent to 75 per cent by 2015 and 85 per cent by 2018, is not strict enough to reduce consumption and fight trade fraud. – Photo Hoang Thach Van

HA NOI (Biz Hub) — Experts are seeking a much larger increase in the special consumption tax on tobacco products than that proposed by the Ministry of Finance.

At a press conference last Saturday, experts said the Ministry's proposal was too low and not strict enough to reduce consumption and fight trade fraud.

They cited the tax rate on the retail price of cigarettes in Viet Nam, which currently stands at 41.6 per cent. To achieve the national strategy of reducing smoking from 47.4 per cent to 39 per cent of males in the population, the new tax must be 105 per cent in July 2015 and 145 per cent in 2018.

According to the draft amendment on the Law on Special Consumption Tax of the Ministry of Finance, the consumption tax on cigarettes will be raised from 65 per cent in 2014 to 75 per cent in 2015 and 85 per cent in 2018.

The new tax is expected to contribute more than VND2.9 trillion (US$131.8 million) in taxes next year and VND7.7 trillion ($350 million) in 2018.

Nguyen Tuan Lam of the World Health Organisation said that if the new tax could increase the price of cigarettes by 10 per cent, the consumption level would be reduced by a mere five per cent.

The experts' proposal has received support from the non-government organisation HealthBridge Canada in Viet Nam. Pham Thi Hong Anh, HealthBridge Canada country director, cited the Ministry of Health's report in 2010, which said 15 million Vietnamese people were smokers, and one of every four smokers were 15 to 24 years old.

One of the reasons why millions of Vietnamese could afford to smoke is the low tobacco tax rate, which was only higher than that of Cambodia compared with other ASEAN countries, Hong Anh said. Viet Nam imposed a 41.6 per cent rate while that of Brunei was 81 per cent, Singapore 71 per cent and Thailand 70 per cent.

Hong Anh said the tax rate should account for two-thirds of the retail price to achieve the target for reducing tobacco consumption.

"The proposal of the Ministry of Finance to raise the rate from 65 per cent to 75 per cent is, in my opinion, not effective. The consumption power of these products will not change," she noted.

Replying to concerns that a high tax rate could lead to a rise in smuggling, Hong Anh said tight management of the retail market could help in minimising smuggling.

She said the fight against smuggling was mainly focused on the border gates and remained loose in domestic areas. If tobacco trading in domestic areas was placed under strict control, the problem would be solved, she added.

However, Phan Thi Hai of the Ministry of Health's Prevention and Control on Tobacco Harm Programme said the experts' proposal was quite high.

She said the ministry agreed with the increase but proposed raising it from 65 per cent in 2014 to 85 per cent in 2015 and 105 per cent in 2018. Hai admitted that this would only maintain smokers' current purchasing power. — VNS