E-cigarettes: Not yet accepted, but what is the calculation of excise tax?

Many opinions are still concerned about the tax increase on cigarettes and the application of excise tax on e-cigarettes, while e-cigarettes are not currently allowed to be officially circulated in Vietnam˳ So how?

Increase tobacco tax to reduce smokers?

According to Mr˳ Nguyen Huy Quang – former director of the Legal Department (Ministry of Health), head of the advisory, criticism and social assessment committee of the Vietnam General Medical Association, for cigarettes, the adjustment of the tax structure in the direction of: add an absolute tax on the appropriate tobacco item˳

However, according to Mr˳ Quang, it is necessary to have a roadmap to adjust the excise tax rate in order to reduce tobacco consumption according to the goals set by the Government in the Action Plan to prevent non-communicable diseases and health disorders˳ mental health in the period of 2022-2025, the Vietnam Health Program to 2030, towards achieving the level recommended by the World Health Organization and the World Bank˳

Dr˳ Nguyen Huy Quang analyzed the reasons for adjusting the excise tax on cigarettes as follows:

– The trend of tobacco tax reform in the world is to apply an absolute tax system or a mixed tax (a combination of proportional tax rate and absolute tax rate)˳

Around the world, the number of countries applying a mixed tax system has increased from 48 countries (2008) to 64 countries (2020)˳ In which, the number of countries applying a mixed tax system with absolute tax rates accounting for most of the product prices compared to proportional taxes increased from 22 countries (2008) to 39 countries (2020)˳

At the same time, during this same period, the number of countries applying a proportional tax system (like Vietnam today) has decreased from 57 countries to 42 countries˳

– The application of a mixed tax (proportional tax and absolute tax) will be more beneficial to both public health and financial goals than applying the current proportional tax system˳ An absolute excise tax is easier to administer than a prorated tax because it is easier to count the quantity of a product than to determine its value˳

In addition, the basis for tax calculation according to the ratio tax (based on the producer’s selling price/importer’s price) is currently very weak˳ This tax base has been recognized around the world as potentially manipulated by the tobacco industry or manufacturers˳

This calculation lacks transparency, is costly in monitoring, and is easily undervalued by taxpayers˳ “Even if the prorated tax rate increases as in recent years, the price to the consumer may not change if the producer lowers the selling price˳ WHO recommends that countries use the rate tax˳ As a rule, the taxable price is the retail price, and more and more countries are applying this method,” Quang emphasized˳

However, the application of a prorated tax rate based on the retail price also has limitations that the application of an absolute tax can address˳ Imposing an absolute tax or a mixed tax makes the average price of products higher, especially in products with lower prices in the price spectrum, helping to limit tobacco use among young people and the poor˳

This also reduces product variety and reduces the gap in the retail price of cigarettes, as opposed to a proportional tax rate that increases the price gap˳

Thus, in general, an absolute tax is more effective than a proportional tax in reducing consumption and generating greater health benefits from the tax increase˳

In particular, according to Mr˳ Quang, tobacco tax in Vietnam currently does not meet the Government’s target in reducing consumption and reducing the smoking rate˳ In the period of 2015 – 2019, Vietnam has increased the excise tax on cigarettes twice (according to the revised Law on Special Consumption Tax 2014)˳ But the increase is low (5% with each increase), the tax base is the producer’s selling price, the gap between the increases is long, so the price increase due to tax increase is very small˳

According to the tax increase impact assessment for the period 2015-2020, with two tax increases (in combination with the implementation of other tobacco harm prevention policies), the overall tobacco use rate decreased by only 1˳2%˳ 22˳5% in 2015 and 21˳3% in 2020)˳

Particularly for the group of men, the reduction was 2˳5% (from 45˳3% to 42˳8%), and did not reach the target of reducing tobacco consumption defined in the Strategy on Prevention of Tobacco Harms to 2020 (male is 39%)˳

Mr˳ Quang added that Vietnam is currently in the group of countries with inefficient tax rates and the lowest cigarette prices in the world, lower than the common level of countries in the ASEAN region˳

Are e-cigarettes included in the excise tax?

Answering the question that many people still wonder about the introduction of e-cigarettes into taxable this time, according to Mr˳ Quang, the addition of new cigarettes (including nicotine products) to taxable objects in the Law on Consumption Tax˳ The revised excise tax (Policy 1 in the report and article 2 of the draft law) at this time is not appropriate and is not proposed to be included in the Law on Special Consumption Tax for the following reasons:

first˳ The Law on Prevention and Control of Tobacco Harms (Law No˳ 09/2012/QH13) has not yet defined the concept of new nicotine and tobacco products, so these products should not be regulated under the revised Special Consumption Tax Law˳ change this˳

2˳ Currently, the Government is consulting ministries and sectors on the management plan for new tobacco products (including nicotine products) and the opinions are not yet unified due to the unclear mechanism of the new tobacco products˳ to manage these products˳ New tobacco (including nicotine products) is an unmarketed product˳ Therefore, if included in the Law on Special Consumption Tax, it will cause a very dangerous interpretation in society that this product will be allowed to circulate in Vietnam and consider this a fait accompli˳

3˳ Risk of increased use of new nicotine and tobacco products among young people, especially adolescents˳ New nicotine and tobacco products are produced in many shapes (pen, USB, heart shape, with flashing lights…) and flavors that appeal to young people (there are about 16,000 flavors of which children love such as: strawberry, vanilla, honey, chocolate…)˳

The appearance of new products with attractive advertising will increase the demand for use (especially among young people), and at the same time inhibit the efforts of current smokers to quit smoking completely and want to quit˳ medicine˳ The product itself is still dependent on the addictive substance nicotine, adversely affecting teenagers and creating a new generation of smokers˳

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