Vietnam is reviewing new tax policies for tobacco products, with experts recommending a gradual tax increase every two years instead of higher annual hikes. The Vietnam Tax Advisory Association (VTCA) has raised concerns that sharp, sudden tax hikes may backfire, leading to higher illicit cigarette trade and reduced tax revenue.
According to the draft law, the government plans to impose a hybrid tax system on tobacco products, combining the current 75% ad valorem tax with a specific absolute tax increase on each pack of cigarettes. The VTCA submitted its recommendations for two proposed scenarios:
The first scenario suggests an annual increase of VND 2,000 ($0.08) per pack starting in 2026, leading to a total tax hike of VND 10,000 ($0.40) per pack by 2030.
The second scenario proposes a VND 5,000 ($0.20) increase in 2026, followed by an additional VND 1,000 ($0.04) increase per year from 2027 to 2029, also culminating in a total increase of VND 10,000 ($0.40) per pack by 2030.
VTCA has urged policymakers to be cautious, citing examples from other countries where abrupt tax increases led to unintended consequences, mainly that smoking rates didn’t drop as consumers turned to cheaper illicit products.
If this proposal is not accepted, VTCA has recommended that lawmakers adopt the first scenario, which calls for an annual increase of VND 2,000 ($0.08) per pack starting in 2026, reaching VND 10,000 ($0.40) by 2030.
