Cigarette profits to go up in smoke

The first regulation is a Ministry of Health (MoH) draft decision that requires at least 30 per cent of surface space on cigarette packages to contain printed warnings of the dangers of smoking.
According to industry experts, the move is aimed at limiting the consumption of cigarettes in compliance with the Framework Convention on Tobacco Control, of which Vietnam is a member country.
The second regulation is a Ministry of Finance (MoF) decision to raise the special consumption tax (SCT) on locally produced cigarettes in a bid to comply with WTO requirements.
Under the plan, the MoF will fix the SCT for cigarettes at 65 per cent, rather than the current three-tiered system that has rates of 25, 45 and 65 per cent, depending on a manufacturer’s local content ratio.
Experts said the MoF’s move is designed to quicken Vietnam’s integration into the WTO, which has put mounting pressure on countries to remove tax discrimination based on local content.
Representatives from cigarette firms interviewed by Vietnam Investment Review said they would face extreme difficulty in coping with the measures.
Nguyen Nam Hai, general director of the Vietnam Tobacco Corporation, said it would cost his company a large sum of money in order to reshape the design of its cigarette packages.
However, he said he was willing to live with the hardship because the rule changes bring Vietnam into compliance with international standards. The manager from a foreign-invested cigarette firm, who asked not to be identified, said implementation of the new regulations should be delayed for the next six to 12 months to give enterprises time to prepare.
“Many enterprises will have stocks of cigarettes that haven’t been consumed, and we’ll need time to sell them,” he said.
However Pham Kien Nghiep, general secretary of the Vietnam Tobacco Association, predicted that the SCT adjustment would have a much more immediate impact on cigarette firms than the new package requirements.
The Vietnam Tobacco Association recently worked with the General Department of Taxation and the MoF to come up with alternate SCT schemes.
Nghiep said the association had submitted three counter-proposals to MoF — one that would set the SCT at 45 and 65 per cent, one that would set it at 52 or 55 per cent, and one that would set it at an undetermined uniform level.
He calculated that if an SCT of 52 per cent were applied, the government would lose around VND300 billion ($19.6 million) in revenue compared to 2004. However, under this plan, only three cigarette makers would be threatened with bankruptcy.
“If the level of 55 per cent is applied, five firms will face closure, and if 65 per cent is applied, almost all of Vietnam’s 17 cigarette firms will have a difficult time surviving,” he said.