Potential Impacts of Specific Tobacco Excise Tax on Illicit Trade in Cigarettes

This Policy Brief was written by the Development and Policies Research Center (DEPOCEN) in Vietnam. The policy brief analyzes the effect that the proposed tax structure changes would have on illicit trade. The authors simulate the effects of several different tax rates on the licit and illicit cigarette markets using two different scenarios. In the first scenario, only the price of licit cigarettes increase, while in the second scenario, the price of licit cigarettes increase and the price of illicit cigarettes increase by 50% of the tax rate. In both scenarios, even the largest tax rate studied, 5,000 VND, does not lead to a substantial increase in illicit cigarette market. In fact, the researchers note that illicit cigarettes are more expensive than the majority of legal cigarettes in the country, and their prices are likely to further increase with the proposed addition of a specific tax rate. The policy brief concludes that the benefits of the specific excise tax would be much larger than the exaggerated threat of illicit trade. 

A corresponding Report can be found here.