Tobacco excise tax increase and illicit cigarette consumption: evidence from Vietnam

Nguyen, Anh Ngoc; Nguyen, Hoang The

doi:10.1136/tobaccocontrol-2019-055301

Cited by 18 publications

(14 citation statements)

References 5 publications

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“…As such the relationship between product price and illicit tobacco in Malaysia seems to be one factor amongst many, rather than the key driver of the problem. This is in line with studies from elsewhere that demonstrate that price is not a primary driver of the illicit tobacco trade (Nguyen & Nguyen 2020;Tiigah & Siu 2020). One particular driver that should not be understated is the role of organised crime groups which have clearly established illicit tobacco trade routes into Malaysia, seemingly facilitated by endemic corruption (WBG 2019;NST 2021;TI 2021).…”

Section: Discussionsupporting

confidence: 90%

Measuring Malaysia’s Illicit Tobacco Trade: An Excise Tax Gap Analysis

Koya¹,

Branston²,

Gallagher

2022

Journal of Illicit Economies and Development

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There is a lack of independent data regarding the illicit tobacco trade in Malaysia. Tobacco Industry (TI) commissioned data has previously been criticised for overestimating the illicit tobacco trade and for a lack of methodological transparency. The aim of this study is to present an independent overview of Malaysia's illicit tobacco market by measuring the country's factory-made cigarette excise tax gap. Using data sourced from Malaysian government publications we calculate the excise tax gap between 2011 and 2019 based on existing approaches whereby the excise tax actually paid is compared with that theoretically due based on estimates of total tobacco consumption. For sensitivity analysis, we established 4 different scenarios of tobacco consumption levels.

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Section: Discussionsupporting

confidence: 90%

Measuring Malaysia’s Illicit Tobacco Trade: An Excise Tax Gap Analysis

Koya¹,

Branston²,

Gallagher

2022

Journal of Illicit Economies and Development

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“…This result may be attributable to a substantially large price gap between them as illicit brands are much more expensive in Vietnam, unlike many other countries where they are typically cheaper than licit brands. 16…”

Section: Original Researchmentioning

confidence: 99%

Income and cigarette price responsiveness: evidence from Vietnam

Nguyen¹,

Nguyen²

2022

Tob Control

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BackgroundVietnam has an ad valorem tobacco excise structure, with the tax base being factory gate price, making the excise susceptible to tax avoidance and less effective in reducing tobacco use. To address these issues, therefore, the government has considered switching to a mixed system in which a specific rate would be imposed on every cigarette pack in addition to the existing ad valorem rate. However, little is known about how smokers with different incomes respond to price increases in Vietnam, raising the concern of regressivity of the tax reform.ObjectivesThis paper aims to provide timely and more updated evidence to support policy discussion on tobacco excise tax reform.MethodsThe study relies on the smokers’ stated preferences, which are elicited from the Tobacco Consumption Survey in Vietnam in 2017–2018. We use data on actual purchases and the stated maximum prices that smokers are willing to pay for their cigarette brands to calculate conditional price elasticity at the individual level. Regression analysis then is used to quantify the extent to which income and other socioeconomic characteristics shape the smokers’ price sensitivity.ResultsBoth the individual incomes and household incomes have negative and significant effects on the price elasticity of conditional demand for cigarettes. This effect is particularly strong after taking the product heterogeneity into account by considering only the most popular brand, but becomes smaller when looking at a more heterogeneous market by excluding that brand from the original sample. The magnitude of the impact of income adjusted for cigarette price is much higher than unadjusted income. The implication is that with sufficiently large variation in price across cigarette brands, which are often the case for countries with ad valorem tobacco excise tax structures, the low-income smokers may not be more sensitive to cigarette price than the high-income smokers so that a uniform percentage increase does not necessarily result in larger consumption fall for the low-income smokers. Narrowing the price gaps between cigarette brands by adding a specific tax component can help address this issue.ConclusionRaising tobacco tax can make the tax policy more progressive and benefit the poor more than the rich in Vietnam. Thus, the Government of Vietnam should switch from the current, purely ad valorem excise tax structure to the mixed system to reduce price variation and make the tobacco tax more progressive.

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“…Among many different brands currently sold in the market, 15 brands with varying prices are selected and subdivided into three regions: 5 licit brands and 1 illicit brand in the North; 5 licit brands and 1 illicit brand in the Central; and 5 licit brands and 3 illicit brands in the South, which account for a majority of national illicit cigarette consumption. 17 In each region, the selected licit brands include both domesticowned and foreign-owned brands (both of which are produced in Vietnam), represent the market's price spectrum, from very cheap to premium products, and are among the most popular brands, while three selected illicit brands account for a predominant share of the total illicit cigarette trade in the country. 16 Together, they account for over 80% market share, which is defined as the number of surveyed smokers consuming the brand as the percentage of the total number of smokers surveyed in the region.…”

Section: Experiments Designmentioning

confidence: 99%

Brand-switching and tobacco taxation in Vietnam

Nguyen¹,

Nguyen²

2021

Tob Control

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BackgroundThe government of Vietnam is embarking on a radical tobacco excise tax reform, switching from the current pure ad valorem scheme to a mixed system by adding a specific component. There have been concerns raised by state-owned tobacco companies against this initiative that switching to a mixed scheme may shift consumption away from cheaper, domestic brands to more expensive, foreign brands (produced locally by joint ventures between multinational tobacco companies and domestic firms) and to illicit cigarettes, thus impairing the domestic industry, rather than reducing cigarette consumption effectively. Unfortunately, although this concern has been one of the biggest obstacles to the tobacco tax reform in the country, no study thus far has attempted to address it due mostly to the unavailability of relevant micro-market data with detailed information on brand choice.ObjectivesThis research attempts to study cigarette brand substitution patterns and quantify the potential effect of the proposed tax structure change on cigarette brand choice to inform tax policy discussions in Vietnam.MethodsA discrete choice experiment is conducted to collect data on smokers’ stated brand choice when cigarette prices change exogenously. Combined with data on their current cigarette consumption, random parameter logit models were estimated and then used to calculate brand-level price semielasticities as well as numerically simulate the impact of tax reforms on smoking.ResultsSmokers are more likely to substitute a low-priced domestic brand with another domestic brand than either with a foreign brand or with an illicit brand, both of which are more expensive. Furthermore, the opt-out is one of the closest substitutes to low-priced brands and also the most sensitive to a change in their prices, implying that smokers of low-priced brands are more likely to buy none of the studied brands when cigarette prices increase. This provides strong suggestive evidence that they appear more likely to stop smoking when faced with higher cigarette prices. Imposing a specific tax tends to reduce the market share for both low-priced and high-priced licit brands, although the estimated market share reduction is larger for the former. In response to specific tax increases, a large share of current smokers do not intend to switch to illegal cigarette brands, but rather choose none of the experimented brands, suggesting their intention to quit. Finally, the magnitude of substitution to illicit brands tends to be negatively related to change in their prices as a result of the specific excise tax hike.ConclusionContrary to the raised concern, smokers are more likely to substitute a domestic brand with another domestic brand than with a foreign brand. Moreover, the threat of illicit trade should not be exaggerated, and there are actions that the government of Vietnam can take to mitigate the threat effectively.

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Tobacco excise tax increase and illicit cigarette consumption: evidence from Vietnam

Cited by 18 publications

References 5 publications

Measuring Malaysia’s Illicit Tobacco Trade: An Excise Tax Gap Analysis

Measuring Malaysia’s Illicit Tobacco Trade: An Excise Tax Gap Analysis

Income and cigarette price responsiveness: evidence from Vietnam

Brand-switching and tobacco taxation in Vietnam

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