Cigarette Brand-Switching Behavior and Tobacco Taxation in Vietnam

This Report was written by the Development and Policies Research Center (DEPOCEN) in Vietnam. The report analyzes the effect that the proposed tax structure would have on cigarette brand substitution, as well as on illicit trade. The researchers find that smokers are more likely to substitute a domestic brand with a different domestic brand, largely because foreign brands are more expensive. When cigarette prices are increased, smokers of low-priced brands are more likely to quit than those of high-priced brands. This finding suggests that low-income individuals would benefit most from increasing the price of cigarettes. Simulating the effect of several different tax rates on the licit and illicit cigarette markets, the researchers do not find that larger tax rates lead to a substantial increase in illicit cigarette market. This is likely due to the fact that illicit cigarettes are more expensive than the majority of legal cigarettes in the country. Illicit cigarette prices are likely to further increase with the proposed addition of a specific tax rate. The report concludes with policy recommendations for the government to improve Vietnam’s population health and fiscal health.