An e-cigarette shop in Hồ Chí Minh City. Vietnam+ Photo

Dr Carmelo Ferlito

Việt Nam’s Ministry of Finance (MoF) has announced its intent to amend the Excise Tax Law (SCT Law), in order to amend the current excise regulation with regard to several products and economic sectors; it is understood that the new framework is going to affect tobacco and nicotine products. While the new tax rates for tobacco and nicotine products have not yet been announced, from the communication received so far it seems that the new and amended SCT law is going to touch heated tobacco products and e-cigarettes too, including the devices and not only the consumables; furthermore, it seems that the proposed revised taxation system will be a mixed system, based on ad-valorem and specific rates, applicable to all the tobacco and nicotine related products.

The MoF’s plan to include in the new regulations also heated tobacco products and e-cigarettes goes in the right direction and it is therefore a welcomed development, as placing these “new” products within an appropriate regulatory framework will only ensure that consumers will have access to better quality products; moreover, the right institutional context can spur innovation and economic opportunities related to the further bettering of alternative nicotine products.

However, such a propulsive regulatory framework, of which taxation is only a limited but decisive part, needs to be framed in the light of more general health considerations; in fact, as it has been stressed from many directions (economists, health experts, etc), heated tobacco products and e-cigarettes are better and safer alternatives for nicotine consumers, and therefore a successful harm reduction strategy needs to acknowledge these results, together with the widespread recognition that punitive or prohibitive laws can only spur illicit trade and therefore produce more harm for consumers’ health.

A taxation policy which embraces harm reduction is thus based on the principle of differential taxation, which means imposing product-specific taxes based on the risks that product poses to the environment or health. In a nutshell: less harmful products should enjoy a preferential tax regime when compared to more harmful alternatives.

The first benefit produced by differential taxation is the shift in consumers’ behaviour, as it produces incentives for consumers to switch to less harmful products. Secondly, a privileged treatment for alternative nicotine consumption could be a drive for innovation, as it would spur research and development investments and innovation-based solutions as well as significant changes in business models, i.e., industry transformation, precisely in favour of the less harmful alternatives: industries are incentivized to develop alternatives for products or services with negative externalities. Finally, differential taxation addresses public health as it reduces consumption of harmful products, potentially reducing the healthcare financial burden for the public healthcare providers.

In light of these considerations, a strong signal of a commitment to harm reduction should be the exclusion of devices from the excise tax, since these are electronic products and not tobacco products. Levying excise tax on the device also risks making these them less affordable, thereby restricting consumers to switch to better products and disincentivising producers to work on further innovation in these products. Similarly, alternative nicotine products should be exempted from excise duties.

The principle of differential taxation should be accompanied by a clearer regulation in terms of import for alternative nicotine products; in fact, the current lack of a proper regulation with regard to this has impeded the emergence of a vibrant market for such alternatives, therefore reducing economic opportunities and the chance for consumers to switch more decisively toward less harmful products.

In conclusion, while Việt Nam discusses the revision of excise duties which will include tobacco products and e-cigarettes (including devices), the reform should be designed in a way that takes into account the chance to commit to an effective harm reduction strategy, and as such it should be open to the principles of differential taxation and free trade.

*Dr Carmelo Ferlito is the CEO of the Center for Market Education, Malaysia