The effect of imposing a higher, uniform tobacco tax in Vietnam

Tobacco use increases the risk of many fatal diseases such as cancer, emphysema, heart disease and other circulatory diseases[ 1 ]. If trends in tobacco use continue, approximately 500 million people alive today will die from smoking, and, by 2030, tobacco is expected to be the leading cause of premature death, accounting for about 10 million deaths per year.[ 2 ] While smoking prevalence has been decreasing in many of the more developed nations, rates have been high and increasing in many of the poorer nations. For example, smoking rates among Vietnamese males 15 year of age and older was 50% in 1997–98,[ 3 ] but rose to 56% in 2002.[ 4 ] The Government of Vietnam is aware of the impact of smoking on public health. It has launched a campaign against smoking by issuance of a Government Resolution on National Tobacco Control Policy[ 5 ] in 2000 with target of reducing the tobacco use prevalence rate to 20% for males and 2% for females in 2010. Vietnam was one of the first Asian nations to sign the World Health Organization's Framework Convention for Tobacco Control in 2003. Tobacco tax increase is among the measures suggested in the 2000 Resolution to achieve its goal of lower smoking prevalence. Other components of the tobacco control program include total ban on cigarette advertising, ban on distributing free cigarette samples, ban on vending machines selling cigarettes, and ban on smoking in all public places. Research evidence shows that imposing taxes on tobacco, as part of a comprehensive tobacco control program, is among the most effective methods of reducing tobacco use.[ 6 , 7 ] Higher taxes create incentives for some regular smokers to quit smoking, help prevent the young from initiating smoking, and reduces consumption among continuing smokers. The majority of evidence on the price responsiveness of tobacco demand is for high-income countries were data and the research capacity exists. Estimates of the price-elasticity for overall cigarette demand fall in a relatively wide range due to model specification, data issues and estimating methodology,[ 8 , 9 ] but the majority center in the relatively narrow range from -0.25[ 10 ] to -0.5.[ 11 , 12 ] Evidence does indicate that low income groups in the high income countries are more sensitive to cigarette prices compared to higher income groups.[ 13 ] Recent studies have begun to focus on tobacco consumption in low-income countries, including South East Asia. For Indonesia, Djutaharta et al. (2002)[ 14 ] used time-series data to estimate cigarette price elasticities in Indonesia ranging from -0.32 to -0.57, Adioetomo et al. (2001)[ 15 ] used household level survey data to obtain a conditional (i.e., on quantity smoked per smoker) price elasticity of -0.6, but the impact of price on smoking participation (i.e., the decision to smoke) was not significant. For Sri Lanka, Arunatilake (2002)[ 16 ] used household level data and estimated that the price elasticity was -0.53 for the whole sample and between -0.68 and -0.29 for the poorest two quintiles, Arunatilake and Opatha (2003) [ 17 ]used aggregate monthly data and estimated price elasticities ranging from -0.227 to -0.908. A price elasticity of tobacco demand in Thailand of -0.67 was estimated by Supakorn (1993)[ 18 ] using aggregate tobacco consumption. Isra et al. (2003) [ 19 ] used a linear expenditure system and household level data, and found the price elasticity of the demand for tobacco products of -0.39. They also found that poorer smokers were more responsive to tobacco prices than their richer counterparts. Karki et al. (2003)[ 20 ] estimated a conditional price elasticity of cigarette demand of -0.42 and a total price elasticity of -0.88 in Nepal using household data. For Myanmar, Nyo Nyo et al. (2003)[ 21 ] obtained a total price elasticity of -1.62 using household data. A WHO study[ 22 ] using time series data obtained an overall price elasticity in Vietnam of -0.53 for cigarettes, but did not take into account a possible substitution into other tobacco products. Also for Vietnam, Laxminarayan and Deolalikar (2004),[ 23 ] controlling for use of other tobacco products, obtained a price elasticity of smoking initiation of -1.18, but did not find a significant impact of cigarette price on quitting. Guindon, et al. (2003)[ 24 ] estimated the demand for cigarettes in South-East Asia using panel data. They obtained short-run price elasticity estimates ranging from -0.17 to -0.78, with most estimates clustering at around -0.74, and long-run elasticities ranging from -0.4 to -1.21. Few studies suggest a limited impact of price on smoking behavior, but a study of cigarette demand in China and Russia[ 25 ] obtained elasticities ranging from 0 to -0.15 using micro-level data. Although variations exist in the elasticity estimates and in the quality of the studies, the evidence strongly confirms a negative relationship between smoking and cigarette prices. Public policy makers can use tobacco taxes to manipulate cigarette price. Tobacco tax rates vary from country to country. In high-income countries, the tax component often accounts for at least two-thirds of the retail price of a pack of cigarettes. In low-income countries, on the other hand, it generally accounts for less than half of the retail price.[ 26 ] In the countries attempting to reduce tobacco consumption, the tax component is typically between two-thirds and three-fourths of the retail price of a pack of cigarettes.[ 6 ] Vietnam has relatively low cigarette taxes leading to low cigarette prices.[ 27 ] (see Figure 1 ). Cigarette prices relative to income are higher than many other countries, but the price-income relationship has fallen quite dramatically in Vietnam between 1990 and 2001.[ 28 ] Tax rate as percentage of price of Vietnam and selected countries . Source: Frank J. Chaloupka, Teh-wei Hu, Kenneth E. Warner, Rowena Jacobs, and Ayda Yurekli, 2000. The effect of tobacco taxes may depend not only on the size, but also on the form of the tax. Specific tobacco taxes are added as a fixed amount to the price of cigarettes, while ad valorem taxes, such as value-added taxes or sales taxes, are a percentage of the base price. Ad valorem taxes may be imposed at the point of sale or, as in China, Vietnam and many African countries, on the wholesale price so that the retail price already includes the tax.[ 29 ] Taxes may also vary according to the origin of the manufacturer or the type of product. For example, some governments impose higher taxes on cigarettes produced abroad than on domestically produced ones, or by type of cigarette such as non-filtered or filtered cigarettes. Among the 114 countries with available information in the Tobacco Control Country Profiles (WHO, 2000),[ 30 ] 95 levy a uniform tax on tobacco, while 19 levy different tobacco tax rates based on types of products and sources of materials, 10 of which were part of the former Soviet Union and or the Soviet bloc. Vietnam is also one of the countries imposing differential ad valorem tax rates. Prior to 1999, Vietnam imposed a tax rate of 70% on filtered cigarettes produced mainly from imported materials, of 52% on filtered cigarettes produced mainly from domestic materials, and a tariff rate of 70% on imported cigars. Since 1999, Vietnam has imposed separate tax rates on three types of cigarettes: a tax of 65% is imposed on filtered cigarettes made from imported materials; a tax of 45% is imposed on filtered cigarettes made from domestic materials; and a tax of 25% is imposed on non-filtered cigarettes made from domestic materials.[ 31 ] Non-filtered cigarettes produced from domestic materials, besides having low production costs, are taxed least, and are thus sold at even lower prices relative to filtered cigarettes. Thus, the tax price with the price of many domestically produced cigarettes around per pack compared to a price of cigarettes such as and that can to ]. Although higher cigarette taxes can reduce smoking and the have for the among smokers and for tax Since low price cigarettes are more to be by with low the low price of cigarettes more for with low income to that can least taxes on low cigarettes will which increase that the smokers are responsive to may reduce consumption or on quantity and have a lower In that from cigarette taxes smoking rates among different income is by the tax and the effect on of the and the effect of taxes on low cigarettes. the tobacco tax policy cigarette estimates the price elasticity of demand for cigarettes by income and the effect of imposing a uniform tax at the level of 65% on consumption and to the of a time series data, data is to smoking among income groups and the that it and to estimate smoking elasticities of that the low price cigarettes. use the Vietnam which was by the from to with a sample of with control was in from data and the survey was The sample was selected using a three the data estimates at the level and are by and and the for clustering and were made to more for using the The on a wide range of including and The has a separate on smoking for people age 6 and are first smoked cigarettes for a of 6 or in the were many cigarettes and the amount of on cigarettes the 12 A cigarette is is at least 15 year or cigarettes and has smoked at least for It is that all smokers are smokers. 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The point between the low price and the is a price of on the Vietnam found that per pack smokers accounts for of the while the smokers accounts for the Thus, Figure 2 that the majority of smokers in Vietnam low cigarettes. The prevalence of cigarette smokers with and household Figure 3 shows the of smokers by cigarette prices and by and 2 and as as for from to of smokers in cigarettes. The increases as one to and is in of by of and . Source: from shows price of cigarette shows of cigarette smokers The cigarettes are among are which includes about of smokers. about of smokers in are Thus, the majority of cigarette smokers in tobacco control are quite ] In cigarette smokers in have low of in the is or has only a and in the has a lower ] 2 tobacco with on other such as and with the total expenditure of have a higher than of tobacco to are and other including tobacco to tobacco to and tobacco to total expenditure are also higher than Tobacco is also higher in While it be expected that low income a part of their income on such as and a part on tobacco, found that the tobacco of low income a of their expenditure than for higher income income tobacco is to their and is to tobacco for higher income are and of and The of low income and higher income tobacco are and 3 the of model estimated with price. The participation model was estimated with three price and price. the price for was often not significant at the level and are not in but can be obtained The of price are significant at the level or Since the price elasticity of participation is to the on the of the price by the smoking prevalence among Vietnam National Health estimate that the price elasticity of participation in smoking is for whole for the two low and for the two high The also indicate that of smoking on tobacco, household size, income and are but the for to and are not significant. The on for high income and for low income are high and significant in the income of Vietnamese smoking prevalence is on the in ] the of the income elasticity has to be with a Vietnamese not to their The of model are in 4 are in 2 ). estimated a with all for the two quintiles, for the two and for the The were estimated with the and prices and price. The price elasticity of the is not significant and not in the If take the price elasticity of the with the prices were significant at the the conditional price elasticity of the overall is for the two low is and for the two high quintiles, it is The overall price elasticity of cigarette demand was by the price elasticity of conditional demand and the price elasticity of smoking for the income used estimates from the model using price. found that the overall price elasticity for the whole is for the two low is and for the two high quintiles, it is 5 and 6 , the consumption and tax the tax and with an increase in taxes for the lower taxed to a uniform 65% tax. 7 can that by imposing a uniform tobacco tax rate of 65% to the former 25% the price of cigarettes will increase while the price of the increases by Government from the tax increase or of which are from the former 25% and from the former 45% total cigarette consumption for with consumption of the first and the Vietnam three different tax rates on tobacco according to the of and filtered or The among rates to among cigarette prices and of cigarettes in the which it for and the to to The evidence that most smokers low cigarettes. of low cigarettes are and in or to be in the income tobacco is to their and is to Higher income smokers also a of their income on tobacco, but the the relative of their high smoking the are also more to have higher of diseases such as cancer, heart and circulatory and ] In diseases can as as age with other smoking the higher disease is to increase the by increasing the of not to to and Thus, of reducing reducing tobacco by the taxes may in most demand studies, study price responsiveness by The price elasticity of participation in smoking is for the whole demand for the low income is more than for the high income as be expected due to their more limited The price elasticity estimates are high compared to evidence from other estimates from a country to the majority of estimates for the total price elasticity around ] estimates not take into account substitution to other tobacco products. are quite with Laxminarayan and Deolalikar ] estimated a price elasticity of smoking initiation of for Vietnam, and generally with other studies for Asia. The high participation elasticity that the price to low income will to in the of cigarette to reduce overall on tobacco by the will in the quantity smoked by continuing to the price of cigarettes increases the quantity of low income smokers that to while the quantity of high income smokers by only The overall quantity among smokers Thus, of to will only be increases in tobacco with a increase among the compared to the higher income a uniform tax of 65% on tobacco will in a increase in the prices of cigarettes and a increase for the domestic filtered the overall price elasticity of cigarette demand of a of tobacco consumption of about and an increase of more than in the tobacco tax of the A study[ 22 ] using a price elasticity of -0.53 a in consumption and increase in The indicate that tax are to increase as tax rates are for domestic and domestic filtered to the rate for filtered cigarettes. Although the increase in tax rate more than Thus, increase the in consumption, that from the to a uniform tax. While used a linear model for of and the is and is not the are not to be between 0 and the on price are with the of cigarette demand and evidence from other ] due to data and the be with income to be in to lower income high income is often as to and the indicate high of cigarette demand to the income is expected to in the in Vietnam, is a that smoking prevalence will tobacco control measures are A is that the substitution into smoking was into account by using on tobacco, of the obtained with lower and of on some of the price in Vietnam, tobacco is a an for cigarettes, among the an increase in the consumption of tobacco, the price of tobacco reducing some of the substitution into use may be to smoking smoking is less and less on the and use has less on health. is on the of substitution into use and the of use relative to that of A is that the price data is with in were to only include the price of and high price obtain relatively with the of the the were not as be expected with also estimated which prices based on the on tobacco and quantity smoked with and obtained In the in tax did not substitution between cigarette the price of the non-filtered domestic may be substitution the filtered domestic and, as the filtered domestic cigarettes may be more substitution the filtered cigarettes with to increase tax as more cigarettes are of the more For may have the increase in tax but the effect on consumption. not or domestic tobacco a uniform tax on cigarettes will increase the domestic price of cigarettes and may the between domestic and the prices of cigarettes in nations more for In higher prices of cigarettes may an increase in domestic tobacco in the tobacco may reduce the tax a of the ] that on other than the between domestic and prices of cigarettes. include the and of of control and the of people in people some to for to cigarettes into The Government of Vietnam to in to the domestic the and the of domestic tobacco as a to cigarette price tax from a price elasticity In to estimates will depend on and other tobacco control among other income and will increase tax but other tobacco control measures will reduce demand for cigarettes and, to reduce focus on Tobacco use by is with of females smoking in and 50% of smokers smoking Since smoking is by some and may be for it is that is some of cigarette and tobacco use among as as it will be to smoking in may with the by The of of the risk with smoking may in a of ] the tax rate that be imposed is to it on many including the imposed by smokers on is in the tobacco and tobacco imposing a high the in consumption may reduce in some the effect is also not the tobacco can tobacco and cigarettes. The of tax rate also on such as the of and from tobacco and on the of to increase tax or to reduce the of tobacco only countries levy different tobacco tax rates on cigarettes. of are former in and the former Soviet Union was from the The differential of cigarette types can be on on public all cigarettes are to health. increase of tobacco taxes can have impact on public part of tobacco tax is for was the first to a by tobacco were the Health such as in Thailand is one of the countries with the in tobacco The tobacco tax from in to in which is as a uniform tax for all tobacco products. the tobacco tax from million in to million in and consumption from million in to million in 2002.[ ] Thus, other tobacco control may the effect of a tax In found that the are more responsive to cigarette prices than with higher a tax increase to relatively higher of cigarette demand among the income and generally that to reduce the that smoking