Vietnam appeases Big Tobacco with toothless taxes

By An Dien, Thanh Nien News

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A man smokes a cigarette while others look at a tablet device while sitting outside of a store in Hanoi, Vietnam. Photo credit: Bloomberg A man smokes a cigarette while others look at a tablet device while sitting outside of a store in Hanoi, Vietnam. Photo credit: Bloomberg


Vietnam's latest bid to raise its tobacco taxes will do little to curb consumption because it fails to hit the country's die-hard smokers where they hurt most – their pockets, health groups say.
At a meeting of the Standing Committee of the National Assembly – Vietnam’s legislature – on Thursday, Minister of Finance Dinh Tien Dung put forth a proposal to raise the excise tax on tobacco from 65 percent to 70 percent in January 2016 and 75 percent in 2019.
The finance ministry said the 2010 Global Adult Tobacco Survey found that around 15.3 million people actively smoke in Vietnam, exposing an estimated 46.8 million, mostly women and children, to secondhand smoke.
Smoking caused around 40,000 deaths in Vietnam in 2007, the World Health Organization (WHO) estimates, which warned that this figure could surge to 70,000 by the end of 2030 if drastic measures are not taken.
“This is the rationale for proposing the increase in excise taxes on tobacco,” the finance ministry said.
That said, the latest tax hike put forward on Thursday represented a big step backward from what the ministry proposed seven months ago.
In February, the ministry proposed raising the excise tax on tobacco to 75 percent next July and to 85 percent in 2018.
Since then, experts and health groups have suggested that the government hike the rates to 105 percent in 2015 and 145 percent in 2018 to achieve its national target of reducing smoking to 39 percent of the male population.
Anti-tobacco activists have expressed wide frustration with the move.
“The target rates are extremely low,” Pham Hoang Anh, Vietnam director of the Canada-based group HealthBridge, told Thanh Nien News.
Health groups say the proposed hike, even if approved, will have little bearing on the affordability of tobacco products in a country where around 24 percent of the population smokes, experts say.
They cite independent studies as saying that if the excise rate is increased from 65 to 75 percent, the total tax burden as a percentage of the retail price will be only 48.1 percent. Given that, if the price of a pack of cigarettes increases by only 10 percent, the price of a pack that costs VND10,000 will only increase to VND11,000, which is still quite affordable for ordinary Vietnamese people.
“It is likely then that this small tax increase will not make a big impact in terms of discouraging smoking,” Anh said.
While Vietnam currently has one of the highest smoking rates in the world, it has one of the lowest tax rates on tobacco products in the region.
Vietnam’s current tobacco excise tax is approximately 40 percent of the retail price, well below the levels recommended by the World Health Organization and the World Bank which called for a rate between 66 and 80 percent.
Excise taxes on tobacco in Thailand are around 70 percent of the price of a pack of cigarettes; in Singapore they're 69 percent.
Experts attribute the Vietnamese government's neutered taxes to concerns that a steep hike will hurt its number-one tobacco brand, Vinataba.
At the meeting on Thursday, Deputy Minister of Industry and Trade Do Thang Hai also voiced concern that high taxes would only fuel cross-border tobacco smuggling.
Health groups dismiss such worries.
“Tobacco taxes are not the primary reason that the illicit trade of cigarettes occurs. Levels of smuggling are generally higher in countries with lax law enforcement and criminal prosecution, weak penalties for smuggling crimes, and strong corruption,” said Caroline Renzulli, an expert at the Washington-based NGO Campaign for Tobacco-Free Kids.
She cited the example of Scandinavian countries where despite high cigarette prices and some of the highest taxes on cigarettes, smuggling is almost non-existent. In contrast, smuggled cigarettes can be easily purchased in Albania, Cambodia, and in Eastern Europe where taxes are already low and cigarettes are cheap.
“Experience shows that these illegal activities can be controlled by effective tax and law enforcement efforts. Revenue generated by a tax increase can finance these activities,” she said.
Anh, of HealthBridge, said there was still hope that the National Assembly, factoring in serious considerations, could make a U-turn when they vote on the planned tax increases at their bi-annual Fall session next November.
But during the meeting on Thursday, Phung Quoc Hien, chairman of the parliamentary Budget and Finance Committee, said he backed the tobacco taxes proposed by the finance ministry.
The only suggestion his committee would make was that the tax be increased to 75 percent in early 2018 instead of 2019 as proposed.
Health groups say that such tax increases will be rendered even more useless if Vietnam signs a US-led free trade pact - the Trans-Pacific Partnership – which contains protections for Big Tobacco.
The US government has sought to amend the TPP so that US firms can use trade rules to compromise anti-smoking regulations passed by the 12 signatory nations.
If the US proposal is accepted, Big Tobacco could sue countries that enact anti-smoking laws, health groups say. It would not provide nations that adopt strong tobacco control measures with the protection they need from tobacco-industry challenges, they say.
“There has been a concern that Big Tobacco will use the TPP to challenge tobacco control measures such as graphic health warnings, and plain packaging of tobacco products,” said Matthew Rimmer, Australian Research Council Future Fellow working on Intellectual Property and an associate professor at the Australian National University College of Law.
Vietnam, along with other countries negotiating the TPP, protested the tobacco proposal, but has largely expressed eagerness to boost trade with its former foe.
“One of the fundamental roles of government is to protect the health of its citizens, and that right to do so should not be compromised because of international trade,” said Jorge Alday, a spokesman for the New York-based World Lung Foundation.
“Simply put: health trumps trade.”
At a meeting on Thursday with the Standing Committee of the National Assembly – Vietnam’s legislature – the Ministry of Finance proposed that the excise tax on beer and liquor will go up from 50 now to 65 percent in 2018.

Vietnamese consumed three billion liters of beer in 2012, or 32 liters per capita, making the country the top consumer in Southeast Asia. It ranked third in Asia (after China and Japan) and 28th in the world, according to market survey company Eurowatch.

The country’s beer market recorded an annual growth rate of 15 percent in 2012, in spite of the fact that its per capita income in that year was just US$1,540, among the lowest in the region, according to Eurowatch.

“Strong demand for beer was stimulated by increasing numbers of Vietnamese consumers who have a habit of drinking beer when socializing, especially in building good relationships with business partners,” global market research firm Euromonitor International said in a report last year.

The Ministry of Industry and Trade looks to churn out four billion liters of beer by 2015 and six billion liters a decade later. In its development blueprint, the ministry stressed the importance of "boosting the production of beer and meet the growing and varied demand of the society."

Given the current business climate, analysts say the proposed increase by 15 percent in alcohol and liquor taxes is not something that will keep beer companies up at night.

“There are not many beer companies on the planet that can post double-digit [sales increases] like those in Vietnam,” Spiros Malandrakis, a Euromonitor International analyst, told Thanh Nien News.

“If we are speaking about the medium- and long-term, the potential of the beer market remains strong in Vietnam and that will not really change much,” he said.


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