A recent survey by Hoang Van Kinh, MA, and colleagues from the Trade University showed that a tax increase on cigarettes would not cause the loss of jobs. Employees in the tobacco industry fear that increases in the luxury tax of 55% in 2006-07, and 65% in 2008, may cause loss of jobs by lowering consumption. Analysts, however, countered that the tax adjustment is not large enough to harm the industry.
According to the World Health Organisation (WHO), total workers in the tobacco industry amount to less than 1% of the total in the production sector. In reality, the WHO says, the number of jobs lost due to modernising has proven to be higher than those lost due to tobacco control policies.
Kinh cited research that, on average, when cigarette prices go up by 10%, demand goes down by 4% in high-income countries and 8% in developing countries with low and average income, and that more people in poor countries give up smoking when the prices go up.
Kinh?s survey also showed that taxes of 65% to 70% of the total production cost would lead to higher State tax revenues, estimated at 10.8% to 20.4%.
Consumption of cigarettes has risen in Vietnam in recent years, from 2.7 billion packs in 2000 to 3.8 billion in 2003. Thus, a tax increase may only hold back the growth rate in output rather than lead to a decrease. As production volume remains high despite the tax adjustment, the changes would not directly cause job loss, studies show.
Kinh added that even when the tax adjustment is large enough to lead to a decrease in output, it would not have a serious impact on quality of life, as total workers in the tobacco industry number around 16,600.
Vietnam currently imports nearly 50% of total materials needed for cigarette production. Even when consumption decreases due to the tax increases, Vietnam would still need to import materials. Yet output is expected to increase as local producers use more and more locally made input materials.
The tax increase, Kinh reasons, is a suitable solution to control cigarette consumption while raising State revenues.
In 1994 in Thailand, for example, when tax on cigarettes was 60%, total turnover was Baht20 million only. In 2001, when the tax increased to 71.5%, the turnover rose to Baht29mil. In the UK, when cigarette tax rose by 1%, the government collected 0.6-0.9% more for the state budget.
Vietnam has proven to be a lucrative consumption market for both locally made and imported cigarettes thanks to low prices. The tobacco industry amounts to 3-4% of the total contribution to industrial production and 15% of total special consumption tax on industries.