Experts in tobacco taxation are recommending that the Vietnamese government simplify its tobacco consumption tax structure. This move is expected to enhance Vietnam's tax management, reduce incidences of tax avoidance and evasion, increase government revenue, and have a positive impact on reducing tobacco use.
The Vietnamese government has recently approved a tax reform strategy that will be implemented until 2030. This strategy involves transitioning from a value-added tax system to a mixed taxation system, which includes taxes on tobacco and other consumer products.
Experts believe that a hybrid tax system combining value-added tax and specific tax is the simplest and most effective. According to a recent report titled "Research on Special Consumption Tax System," PwC Vietnam called it the "correct direction in line with the overall global trend.
According to the report, the Vietnamese government has lost revenue due to tobacco smuggling, particularly during the years of 2016-2017.
A report indicates that the total amount of tax revenue lost due to tobacco smuggling has reached 9% of the total tobacco tax revenue. From 2006 to 2020, tobacco tax remained unchanged and did not factor in inflation.
Based on an analysis of the current consumption tax policy, government goals, and comparable countries' tax policies, the article outlines some choices and short-term and long-term roadmaps for the reform of the special consumption tax.
The first option is to transition to a hybrid tax system and gradually increase specific components while reducing ad valorem components in the future. Consider shifting to a single-tier specific tax system when appropriate.
The second option is to transition to a multi-tiered specific tax system, and gradually reduce the number of tiers to become a single-tier specific system.
Both options have advantages and disadvantages, but according to PwC Vietnam, the first option is more reasonable for Vietnam. Based on the Asia Illicit Tobacco Index, in 2017, Vietnam consumed more than 23.3 billion illegal cigarettes, accounting for 23.4% of total tobacco consumption.
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