Impact of cigarette price increase on health and financing outcomes in Vietnam

Introduction

According to the Global Adult Tobacco Survey (GATS), about 23.8% adults aged 15 years and older or about 15.3 million adults smoked tobacco in Vietnam in 2010¹. About 97% of the cigarette smokers were males¹. By education level, the prevalence is highest among men with lower secondary and upper secondary education, and lowest among those with college education and higher (47% vs 30%). To reduce the prevalence of smoking, in 2013, the government of Vietnam launched the National Strategy on Tobacco Control through 2020 with the target of reducing the rates of smoking from current prevalence by about 40% in youths aged 15–24 (target of 18% in 2020) and by about 20% for adults (target of 39% for men and <1% for women by 2020)². Vietnam was also one of the first countries in Asia to become a party of the World Health Organization Framework Convention on Tobacco Control (WHO FCTC) in 2005². In 2012, the country also enacted the Law on Prevention and Control of Tobacco Harms, which significantly strengthened tobacco control policies. The new law established smoke-free places; increased the size of graphic health-warning labels; instituted a comprehensive ban on tobacco advertising, promotion, and sponsorship; and established the first Vietnam Tobacco Control Fund³. Between 2010 and 2015, the prevalence of any tobacco smoking among males only fell from 47.4% to 45.3%; the prevalence among females remained at 1%^1,4. The majority of the smokers smoke manufactured cigarettes (70%), with the remaining being smokers of traditional bamboo waterpipe (26%), hand-rolled cigarettes (2%), and other tobacco products (2%)⁴.

Tobacco taxation is the single most effective intervention to increase cessation rates among current smokers and to decrease initiation by young people⁵. According to Article 6 of the WHO FCTC, tobacco taxation policy is “an effective and important means of reducing tobacco consumption by various segments of the population, in particular young persons”⁶. The Guidelines for Implementation of Article 6 of the WHO FCTC recognize that effective tobacco taxes significantly reduce tobacco consumption and prevalence⁶. This consumption reduction role of tobacco taxation is due to the fact that special consumption or excise taxes increase prices of tobacco products relatively to other consumption products or income; and through this to reduce smokers’ demand. In order to do that, the Guidelines recommends that: “taxes rates should be monitored, increased or adjusted on a regular basis, potentially annually, taking into account inflation and income growth developments in order to reduce consumption of tobacco products”⁶. Also, effective tobacco taxation may contribute significantly to state budgets, if increasing revenue growth outweighs the percentage decline in consumption of tobacco products.

Methods

We used the model from the Disease Control Priorities Project which draws upon the analytic framework of the Asian Development Bank to estimate the fiscal, health and poverty impact of increasing cigarette taxes^12,13. The model was previously used by the Global Tobacco Economics Consortium (GTEC) to estimate the impact of a 50% increase in the price of cigarettes on health, poverty, and financial outcomes in 13 middle-income countries⁵.

Results

Before the cigarette price increase, an estimated total of about 12.1 million males aged 15 years and older smoked cigarettes in Vietnam (Table 2). Men in the bottom income group constitute about 18%, while men in the top income group constitute about 16% of the total number of male smokers. This is a small difference across income groups by international standards. Men in the lower-middle and middle income groups account for about 50% of the total number smokers.

Impact of cigarette price increase under Scenario A

An increase in cigarette price under Scenario A, which would be equivalent of a 32% increase in the retail price, would lead to about 1,485,000 men quitting smoking, with the bottom income group having 2.8 times as many quitters as the top income group (377,000 vs 133,000) (Table 2). An estimated total of 630,000 deaths due to COPD, stroke, heart disease, and cancer would be averted among current smokers due to quitting. The number of averted deaths in the bottom income group would be 2.8 times that in the top income group (160,000 vs 56,000). The deaths averted due to quitting would yield about 11 million life-years, with the bottom income group gaining 2.8 times more life-years than those the top income group (2.8 million vs 1 million). In absolute terms, over a quarter of the overall reduced deaths and life years gained would occur in the lowest income group of men.

The cost averted for treating the four major tobacco-attributable diseases would amount to about VND9,746 billion ($Int 1.3 billion) (Table 3). The treatment cost – and suffering – averted in the bottom income group would be 2.5 times higher than in the top income group (VND2,346 billion vs 949 billion, or $Int 304 million vs 123 million). About 285,000 men would avoid catastrophic health expenditures, with the number of men in the bottom income group being 5.5 times that in the top income group (73,000 vs 13,000). As a result of the catastrophic health expenditures averted, about 94,500 men would avoid falling into extreme poverty as defined by the World Bank as income of under $1.90 per day in purchasing power parity. The number of families falling into extreme poverty would be somewhat smaller, depending on earnings by other household members, but would still be large. The increase in excise tax needed to achieve the cigarette price increase would generate more than VND11.7 trillion ($Int 1.5 billion). In contrast to the distribution of health benefits, the extra revenue generated from men in the top income group would be a modest 1.2 times that from the bottom income group (VND2 trillion vs 1.7 trillion, or $Int 264 million vs 225 million).

Impact of cigarette price increase under Scenario B

A cigarette price increase under Scenario B which is an equivalent of a 62% increase in the retail price of cigarettes would result in about 2,877,000 men quitting smoking. Of this, the bottom income group will have 2.8 times as many quitters as the top income group (730,000 vs 258,000) (Table 2). Quitting as a result of the price increase would avert about 1.2 million deaths due to COPD, stroke, heart disease, and cancer among male smokers. The number of deaths averted in the bottom income group would be 2.8 times that in the top income group (309,000 vs 109,000). As a result of the deaths averted, Vietnam would gain about 21 million life-years and avert about VND 18,882 billion ($Int 2.4 billion) in treatment cost for treating the four major tobacco-attributable diseases (Table 3). The averted treatment cost in the bottom income group would be about 2.5 times that in the top income group (VND4,545 billion vs 1,837 billion, $Int 589 million vs 238 million). About 552,000 men would avoid catastrophic health expenditures, with the bottom income group avoiding 5.6 times that of the top income group (141,000 vs 25,000). As a result of the catastrophic health expenditures averted, about 183,000 men would avoid falling into extreme poverty. The tax increase would generate about VND12.9 trillion ($Int 1.7 billion), with contribution from the top income group being about 4 times that from the bottom income group (VND3,137 billion vs VND827 billion, $Int 407 million vs $Int 104 million). The extra tax revenue is particularly progressive in this scenario of a 62% price increase than the smaller increase.

Comparison of 50% price increase in Vietnam vs in Indonesia

To compare the impact of cigarette price increase in Vietnam vs in other Southeast Asian countries, we used the findings of GTEC (2018). Table 4 shows the impact of a 50% cigarette price increase on the number of males who quit after the price increase, deaths averted, life-years gained, treatment cost averted, number of men avoiding catastrophic health expenditures and extreme poverty, and the additional tax revenue collected in Vietnam and Indonesia, according to GTEC (2018). Compared to Vietnam, with a 50% cigarette price increase, the ratio of the number of quitters, tobacco-attributable deaths averted, and life-years gained between the bottom and the top income group is greater in Indonesia. However, the ratio of the number of men avoiding extreme poverty is substantially higher in Vietnam than in Indonesia.

Sensitivity analysis

Figures 1a–c shows the result of our sensitivity analyses of the impact of varying levels of price increase and using the universal price elasticity of -0.40 on life-years gained, treatment costs averted and catastrophic health expenditures avoided, respectively. Using the price elasticity in Vietnam (-0.53), with a 25%, 50% and 100% price increase, the ratio of the number of life-years gained between the bottom and the top income groups is 2.8 for all price increases (Figure 1a). The ratio increases to 6.1 when we apply the universal price elasticity to a price increase of 32% and 62%. Similarly, when the price elasticity is -0.40, the ratio of the treatment cost averted and catastrophic health expenditures avoided by the bottom versus the top income group for all price increases, except for treatment cost averted with 100% price increase, is 2.5 and 5.6 respectively, and increases to 5.3 and 12.1 respectively, when the price elasticity is -0.40 (Figure 1b, c). The additional tax revenue collected from the top income group with a 50% and a 25% price increase with -0.53 price elasticity and a 62% and a 32% price increase with -0.40 price elasticity is between 1 and 2 times that of the bottom income group (Figure 1d). With a 100% price increase, about 95% of the tax burden would be borne by the top income group.

Figure 1. Sensitivity analysis.

Shown are analyses for the impact of a 25%, 50%, and 100% price increase with -0.53 price elasticity (cigarette price elasticity of demand in Vietnam), and for a 32% and 62% price increase with the universal price elasticity of -0.40 on (a) life years gained, (b) treatment cost averted, (c) number of men avoiding catastrophic health expenditure, (d) additional revenue collected.

Discussion

We found that a cigarette price of 32% or 62% in Vietnam would favour the bottom income group of the population more strongly in terms of deaths averted, life-years saved, out-of-pocket expenditures for treating tobacco-attributable diseases, catastrophic health expenditures, and extreme poverty averted. Our findings are consistent with the earlier findings of GTEC of the impact of a 50% increase in cigarette price in 13 middle-income countries, which challenges the conventional view that tobacco taxes are more detrimental to people on low versus high income⁵.

Tobacco tax hikes in other countries have shown that when taxes increase, consumption decreases and smoking rates decrease, but government revenue still rises. Jha and colleagues recently showed that higher cigarette prices substantially reduced smoking, even after accounting for illegal cigarette sales, in France and Canada²⁸. In Canada, when tobacco tax was lowered in the early 1990s in response to illicit tobacco trade instigated by the tobacco industry, consumption rose. In Thailand, between 1993 and 2012, the SCT on cigarettes was increased 10 separate times, about one tax increase every two years, from 120% to 670% of the factory price². As a result of the price increase, the smoking prevalence decreased from 32% in 1991 to 20% in 2015, while tobacco tax revenue increased more than four times². The tax increase also did not lead to smuggling, as GATS 2011 in Thailand showed that only 4.8% of smokers used smuggled cigarettes²⁹. In the Philippines, prior to 2012, a four-tiered excise tax system, with various tax rates ranging from 2.72 Philippine Pesos (PHP) to 28.3 PHP per pack of cigarettes as applicable to tobacco products at different prices was used². In 2012, the four-tiered tax structure was replaced by a two-tiered tax structure and tax rates on cigarettes was steadily increased from 2013 to 2016, reaching a common tax rate of 30 PHP per pack in 2017². As a result of the tax increase, the rate of smoking among adults fell from 30% in 2009 to 24% in 2015,³⁰, while the tobacco tax revenue increased by more than three times². Compared to Thailand and the Philippines, Vietnam has the highest annual consumption of 3,900 million packs but collects only about one-third of the total tobacco tax collected in Thailand or the Philippines due to the current low tax rate. Increase in tobacco taxes could generate substantial revenues that could be used to finance universal health coverage in Vietnam. Although the tax revenue itself would not provide enough to meet the financial needs of universal health coverage, it would make a significant contribution⁵.

Our study has some limitations, including the assumptions of price elasticities. Variation in price responsiveness has been reported in Vietnam, as recently reviewed by Fuchs and colleagues³¹. However, various sensitivity analyses suggested that variation in elasticity did not influence the overall conclusions greatly. Second, our study used the price of the most-sold brand of cigarettes, Vinabata, which comprised about 60% of the market share in 2015–2017³². The average cigarette price is much lower than the price of the most-sold brand. The average cigarette price was VND15,000 per pack and the price of Vinabata was VND20,200 per pack in 2017³³. The Vietnam tax structure, with much higher taxes per cigarette on higher price brands, encourages downward substitution between brands, reducing quitting and decreased consumption. A set of recent analyses has shown that tobacco tax increase needs to be substantial so as to avoid downward substitution and prevent the rent seeking opportunities by the cigarette industry⁷. A large tax hike means greater revenue generation for the government versus profits for the industry. A key argument of this analysis is that to in order to maximize the health benefits, large increases in tax should preferentially be imposed on the cheapest brands. This is quite consistent with the policy guidance from the World Bank to move to specific (rather than ad valorem) taxes that are equal across cigarette price categories⁷. Reassuringly, the overall results focused here on avoidance of out of pocket expenditures are consistent with a recent analysis by Fuchs and colleagues that focused on net income gains across declines in Vietnam smokers³¹. The main differences in details arise in taking the male smoker as the unit of analysis here as compared to the household in Fuchs and colleagues’ study, as well as in other minor differences in the methodologies applied. Third, we used education level as a proxy indicator for income quintile. Due to data limitations, we could not verify whether the income used to represent each quintile corresponds to the income by education level. Fourth, our model applied only to the entire lifetime of the current cohort of smokers, hence it underestimates the effects on future consumption decreases, particularly if the large early price hikes also lead to higher future price expectations⁵. Finally, the assumption that the poor are more price responsive was central to our analysis, and while the exact responsiveness to price does likely vary in Vietnam from other settings, there is substantial earlier evidence, in Vietnam as well as globally, to document that the poor are in fact more responsive to price³¹.

Conclusions

Vietnam has made substantial progress in reducing tobacco use. Further progress is likely to be possible with large increases in price, particularly those that focus on narrowing the gap between the least and most expensive cigarettes. Higher cigarette taxes would also reduce poverty by reducing out of pocket health expenditures among the poorest smokers.

Data availability