Will new taxes curb smoking and drinking in Vietnam?

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For experts and analysts, the answer is a resounding ‘no’ while the Trans-Pacific Partnership could render anti-smoking laws toothless

Promotion girls dance at a beverage fair in Hanoi. A government proposal to increase excise taxes on alcohol and tobacco is unlikely to curb consumption in a country where people’s smoking habits die hard and their thirst for beer is just as difficult to quench, experts say. PHOTO: AFP

A recent government proposal to increase special consumption taxes on alcohol and tobacco is unlikely to curb consumption in a country where people’s smoking habits die hard and their thirst for beer is just as difficult to quench, experts say.

Given Vietnam’s current tax regime, the planned hikes by up to 30 percentage points pale in comparison with those in Vietnam’s neighborhood and are too paltry to hit smokers and drinkers where it hurts most - their pockets, experts say.

They add that such tax increases would turn out to be even more cosmetic if Vietnam signs a US-led free trade pact - the Trans-Pacific Partnership - that will force the government to slash tariffs on imported beer and is looking to beef up protection for Big Tobacco.

Under a proposal drafted by the Ministry of Finance to take effect on July 1 next year if approved, the excise tax on beer and liquor will go up from 50 now to 65 percent. The rate on tobacco will increase from 65 now to 75 percent in July next year and to 85 percent in 2018.

“Excessive consumption of alcohol harms human health and causes many social problems like violence, crimes, and traffic accidents,” the ministry said in the draft proposal.

It also cited the Global Adult Tobacco Survey 2010, an international standard for systematically monitoring adult tobacco use and tracking key tobacco control indicators, as showing that around 15.3 million people actively smoke in Vietnam and an estimated 46.8 million, mostly women and children, are exposed to secondhand smoke.

Smoking caused around 40,000 deaths in Vietnam in 2007, the World Health Organization (WHO) estimates, warning 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, referring to the impact of smoking and its projected damage.

Smoking gun

But while Vietnam currently has one of the highest smoking rates in the world, it has one of the lowest tax rates for tobacco products in Southeast Asia.

Vietnam’s tobacco excise tax is approximately 40 percent of the retail price, which is “well below the levels recommended by the WHO and the World Bank that 66 percent to 80 percent of retail price [should be excise], and well below countries in the region with effective tobacco tax policies,” Johanna Birckmayer, director of International Research at the Washington-based NGO Campaign for Tobacco-Free Kids, told Vietweek.

Excise taxes on tobacco in Thailand are around 70 percent of retail price and in Singapore 69 percent of retail price.

The Philippines also had very low tobacco tax rates.  But in 2012 the country increased their tobacco excise tax by more than 700 percent. Thailand also hiked its excise rates 10 times between 1991 and 2012. The last time Vietnam raised its cigarette excite rates was in 2008.

Vietnam’s planned cigarette tax increases, even if approved, will have little bearing on the affordability of tobacco products in a country where smoking prevalence rate is around 24 percent of the population of 90 million, experts say.

“If the excise rate is increased from the current 65 percent to 75 percent, our study has shown that the total tax burden as a percentage of the retail price will be only 48.1 percent and if we presume that the price of a pack of cigarettes also will increase by only 10 percent, then the price of a pack that costs VND10,000 will increase to VND11,000, which is still quite affordable,” Bungon Rithipkakdee, director of the Southeast Asia Tobacco Control Alliance, told Vietweek.

“It is likely then that this small tax increase will not make a big impact to discourage smoking,” she said.

Beer haven

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.

Both local and foreign investors have joined the fray, setting off a brewery-building binge in the dog-eat-dog beer market.

Vietnam's leading brewer Saigon Beer, Alcohol and Beverage Corp (SABECO) is at the forefront of opening breweries across Vietnam. Meanwhile, foreign beer firms new to Vietnam, including Japan's Sapporo and US brand Budweiser, keep landing here.

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 liquor...to 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 Vietweek.

“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.

Old habits die hard

Apparently, there is nothing that stands in the way of Vietnam becoming a beer haven as its integration into the World Trade Organization and possible the Trans-Pacific Partnership, or TPP, in the near future is set to open up more opportunities for investment and imports from foreign companies, particularly with the government's commitment to slash taxes on imported beer.

Restaurants, either street-side or posh, have continued to crop up to an increasingly various clientele ranging from government officials to working class people. A drinking session can begin at noon and last until midnight or even later.

Media stories of public officials causing fatal accidents because of drunk driving have continued to raise public hackles, particularly in the context of Vietnam enforcing a nationwide ban on civil servants drinking during lunch on working days.

Vietnamese lawmakers have not even passed a law on controlling the negative impacts of beer and liquor as they have done with tobacco.

As for the tobacco law passed last May, admittedly a comprehensive one, its results so far have been “a bit unsatisfactory,” said Pham Thi Hoang Anh, the Vietnam country director of HealthBridge Canada, an international health advocacy group.

Health advocates urge the Vietnamese government to keep raising tobacco taxes before it is too late, given that Southeast Asia is a key target market for the expansion for tobacco corporations.

In what health advocates call a brazen move, the US government has sought to include tobacco in the TPP, which would enable tobacco companies to use trade rules to compromise government anti-smoking regulations.

If the US proposal is accepted, Big Tobacco could sue countries that enact anti-smoking laws deemed to be in breach of the TPP, 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.

Given the “uniquely harmful” effects of tobacco products, “the consequences would be horrendous if Vietnam condones to the US proposal [on tobacco] in the TPP,” said Anh of HealthBridge.

Vietnam, along with other countries negotiating the TPP, has protested the tobacco proposal but by and large, it has repeatedly exhibited its eagerness to sign the pact as an indication of its keenness to boost trade with its former foe.

Meanwhile, in a Confucianism-dominated country where drinking and smoking is associated with masculinity, old habits die hard.

Nguyen Thi Chi, a mother of seven sons in the Mekong Delta province of Vinh Long, said her kids all love to drink and smoke a lot whenever they get together.

Chi said when she tried to show them her disapproval of their “unhealthy” habits, one of them said: “Look mom, if a man cannot drink or smoke, he is likely to become either a drug addict or robber. Do you want us to be like that?”

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