Impacts of excise tax on unhealthy commodities in vietnam a computable general equibrium approach

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY DANG THI BICH THAO IMPACTS OF EXCISE TAX ON UNHEALTHY COMMODITIES IN VIETNAM: A COMPUTABLE GENERAL EQUIBRIUM APPROACH MASTER'S THESIS Hanoi, 2019 VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY DANG THI BICH THAO IMPACTS OF EXCISE TAX ON UNHEALTHY COMMODITIES IN VIETNAM: A COMPUTABLE GENERAL EQUIBRIUM APPROACH MAJOR: PUBLIC POLICY CODE: PILOT RESEARCH SUPERVISORS: DR TRAN LAM ANH DUONG DR NGUYEN TIEN DUNG Hanoi, 2019 ACKNOWLEGEMENT During years studying in the Vietnam - Japan University (VJU), I have not only obtained valuable knowledge and skills but also live in the hands of love of VJU and University of Tsukuba’s lecturers as well as my beloved MPP friends First of all, I would like to express my sincere thankfulness to my supervisors, Dr Tran Lam Anh Duong, University of Tsukuba and Dr Nguyen Tien Dung, University of Economics and Business for their useful support during the whole process of the study Without their guidance, I would have not finished my thesis in time Secondly, I would like to express my great attitude to MPP program, especially Dr Nguyen Thuy Anh, Dr Vu Hoang Linh, Professor Naohisa Okamoto and Ms Pham Thu Ha Their encouragement and assistance has facilitated me a lot during the studying process Thirdly, I greatly appreciate the kind support of Professors Hiroichi Kawashima, Morito Tsutsumi, Yoshiaki Ohsawa and staff of the Global Initiative Office, University of Tsukuba for supporting me during months internship in Japan at the end of 2018 The knowledge obtained during this internship contributed significantly for my thesis accomplishment Finally, the sincere thanks are expressed to my family, especially my husband, my parents and my kids for always staying besides and supporting me over the past two years The experience in VJU and University of Tsukuba would be the best memory in my life i TABLE OF CONTENTS ACKNOWLEGEMENT i LIST OF TABLES iv LIST OF FIGURES v LIST OF ABBREVIATIONS vi CHAPTER INTRODUCTION 1.1 Research context 1.1.1 The consumption of unhealthy commodities in Vietnam and its impacts 1.1.2 The role of excise tax in reducing the consumption of unhealthy commodities and history of excise tax in Vietnam 1.1.3 The needs to re-structure taxation revenue sources in Vietnam 1.2 Research questions, research objectives and methodology 1.3 Research structure CHAPTER LITERATURE REVIEW 2.1 Literature on the impacts of excise tax on unhealthy commodities 2.2 Literature on research methodologies 12 CHAPTER RESEARCH METHODOLOGY 14 3.1 Static standard single CGE model 14 3.1.1 Price block 15 3.1.2 Production block 17 3.1.3 Income block 18 3.1.4 Demand block 20 3.1.5 Demand for exports and imports 21 3.1.6 Equilibrium conditions 22 3.2 Data 23 3.2.1 Vietnam Input-Output table 2012 23 3.2.2 Data on state budget revenue from excise tax 23 3.2.3 Data on cooperate, personal income tax revenue and fund transfers 24 ii 3.2.4 Elasticity parameters 24 3.3 Simulation scenarios 25 CHAPTER RESEARCH FINDINGS 26 4.1 Impacts of unhealthy commodity excise tax on real GDP 26 4.2 Impacts of unhealthy commodity excise tax on household’s income 26 4.3 Impacts of unhealthy commodity excise tax on state budget revenue 28 4.4 Impact of unhealthy commodity excise tax on consumption 29 4.5 Impacts of unhealthy commodity excise tax on outputs of industries 30 4.6 Discussion on the impacts of unhealthy commodity excise tax on public health32 CHAPTER CONCLUSION, POLICY DISCUSSION, LIMINATION OF THE RESEARCH AND FURTHER STUDY 33 5.1 Conclusion 33 5.2 Policy discussion 34 5.3 Limitation of the research 35 5.4 Further study direction 36 REFERENCE 37 LIST OF PUBLICATION OF THE AUTHOR 43 APPENDIX 44 Appendix 1: List of industries in I-O table 44 Appendix 2: State budget revenue from imported commodities 2012 45 iii LIST OF TABLES Table 1.1: History of excise tax in Vietnam Table 2.1: International literature on the impacts of taxation on unhealthy commodities 10 Table 2.2: Vietnam literature on the impacts of taxation on unhealthy commodities12 Table 3.1: Domestic excise tax revenue 2012 (thousand billion VND) 24 Table 4.1 Impact of unhealthy commodity excise tax increase on real GDP 26 Table 4.2 Impact of unhealthy commodities excise tax increase on household's income 28 Table 4.3 Impact of unhealthy commodity excise tax increase on State budget revenue 29 Table 4.4 Impact of unhealthy commodities excise tax increase on consumption 30 Table 4.5: Impacts of unhealthy commodity excise tax increase on outputs of industries 31 iv LIST OF FIGURES Figure 1.1: Ratio of obesity (BMI≥ 30) among adults in Vietnam, 1976-2016, (%) Figure 1.2: Average tax to GDP ratio of Vietnam and other countries, 1990-2016, (%) Figure 1.3: Public debt/GDP of Vietnam and emerging markets and developing countries, 2000-2016, (%) Figure 1.4: Ratio of some sources of state budget revenue/total state budget revenue, 2000-2017, (%) v LIST OF ABBREVIATIONS AIDS Almost Ideal Demand System Model BMI Body Mass Index CGE Computable General Equilibrium Model CIF Cost, Insurance and Freight CIT Corporate Income Tax FCU Foreign Currency Unit FOB Free on Board FTA Free Trade Agreement GSO General Statistic Office GTAP Global Trade Analysis Project IMF International Monetary Fund I-O Input-Output LCU Local Currency Unit MOF Ministry of Finance PIT Personal Income Tax RR Risk ratio SSB Sugar - sweetened beverage VAT Value-added Tax VHLSS Vietnam Household’s Living Standard Survey VND Vietnam Dong vi CHAPTER 1.INTRODUCTION 1.1 Research context 1.1.1.The consumption of unhealthy commodities in Vietnam and its impacts The excessive consumption of alcohol, tobacco and sugar-sweetened beverage (SSB) causes serious problem for human health The 2018 World Health Organization(WHO) reports that alcohol result-ed in approximately million deaths and 132.6 million disability-adjusted life years worldwide in 2016 Tobacco was blamed for the death of around six million people each year including 600,000 whose suspected cause of deaths is second-hand smoking Besides being blamed for ill-health, disability and death from non-communicable diseases, tobacco is also associated with the risks of communicable diseases (WHO, 2015) Meanwhile, Malik, Pan, Willett, & Hu (2013) affirmed that SSB promotes weight gain in children and adults Alcohol, tobacco and SSB, in this study are referred to as unhealthy commodities Recently, the consumption of unhealthy commodities in Vietnam is becoming more serious Data of WHO (2018a) shows that the alcohol per capita consumption of Vietnam increased steadily since 1991, from only 0.16 liters of pure alcohol1 per person per year in this year to 3.1 liters in 2016 According to Pham, Tran & Tran (2018), the proportion of adults drinking in Vietnam raised from 46% to 77% among men and 2% to 11% among women between 2002 and 2016 In 2017, Vietnamese consumed 305 million liters of alcohol and 4.1 billion liters of beer, ranking first in Southeast Asia region and ranked third in Asia, just after Japan and China (WHO, 2018b) The ratio of male smoker in Vietnam is very high (46%) compared to Japan (33.7%) and global average (33.7%) According to the Vietnam Household’s Living Standard Survey (VHLSS) 2010, 2014 and 2016 of the Vietnam General Statistic Office (GSO), the average Pure alcohol is a common unit to measure the alcohol consumption 25 g pure alcohol is defined as 750 ml beer, 75 g low-alcohol liquor, 50 g hard liquor, and 250 ml wine (Huang, Liu, Li, Xu, & Jia, 2017) consumption of SSB per households over 2010-2016 was increasing In 2010, each household in Vietnam consumed only 151.42 liters of SSB per year, the consumption increased to 185.38 and 189.14 liters in 2014 and 2016 respectively Figure 1.1 illustrates the ratio of obesity among adults in Vietnam over 1976-2016 which observed a steady increase in recent 10 years From 2006 to 2016, the ratio of obesity among adults in Vietnam has increased from only 0.6% to 2.1% 3% 2,1% 2% 1,5% 2% 1% 1% 0,1% 0,2% 0,3% 1976 1981 1986 0,3% 1991 0,5% 0,7% 0,6% 2001 2006 0% 1996 2011 2016 Figure 1.1: Ratio of obesity (BMI≥ 30) among adults in Vietnam, 1976-2016, (%) Source: author’s calculation based on Global Health Observatory data of WHO (2018) The above descriptive data portrays the serious situation of the consumption of unhealthy commodities and its serious consequences in Vietnam in recent years It urgently requires the society and government to review its policies to direct Vietnamese consumers toward a healthier consumption habit 1.1.2 The role of excise tax in reducing the consumption of unhealthy commodities and history of excise tax in Vietnam Among many measures to control the consumption of unhealthy commodities, taxation policies are considered strongly effective Many previous studies have already proved the effectiveness of unhealthy commodity taxation Koski, Sirén, Vuori, & Poikolaine (2007) and J.Cook & Moore (1994) affirmed that alcohol tax had significant impact in reducing drinking prevalence, traffic fatalities, robbery rate and increasing college graduation among the youth Zhang, Cohen, & Ferrence (2006) and Keeler, Barnett, & Manning (1993) said that tobacco tax supported to reduce tobacco consumption and number of smokers Meanwhile, Andreyava, Chaloupka, & D.Brownell (2011) and Wang, Coxson, Shen, Goldman, & Bibblins2 For alcohol, in scenario 1, and when the alcohol tax was not decreased, the outputs of this industry was increased This might be due to the shift of labour and capital resources to this industry In scenario 3, due to an increase of tax rates to 1.2 time, output of alcohol and beer deceased by 1.435% and 1.358% respectively This decrease ratio is small in comparison with other commodities This could due to the fact that the price of alcohol in Vietnam is very low in comparison with other countries Thus a small increase in price would not urge the consumers to change their consumption habits Comparing scenario and 1, when the tax rates for SSB increases from 10 to 20%, we noticed that the reduction on output of the agricultural industry providing material for SSB industry like industrial plants (including sugar cane) was bigger The increase of alcohol tax rate in scenario also leads to the reduction of output of cereal industry - material to produce alcohol However, the reduction of these agricultural industries are very small In conclusion, the imposing/increasing of tax rate on unhealthy commodities would lead to the significant decrease in outputs of these industries However, the labour and capital would be moved to other industries, lead to the small changes in real GDP In addition, additional state budget revenue would be generated and the consumer’s behavior would be directed towards healthier style Even the unhealthy commodities would be the most painful due to the tax policy, their sacrifice are necessary for a better scenario of the whole economy Table 4.5: Impacts of unhealthy commodity excise tax increase on outputs of industries % change in output Scenario Scenario Scenario Scenario 0.105 0.201 -1.435 0.200 Beer 0.002 0.004 -1.358 004 Tobacco -7.918 -7.908 -5.443 0.019 SSB -10.607 -19.984 -19.991 -19.984 Cereal -0.084 -0.164 -0.173 -0.167 Industrial plants -0.041 -0.081 -0.083 -0.084 annual crops -0.702 -0.727 -0.522 -0.051 Industry Alcohol 31 4.6.Discussion on the impacts of unhealthy commodity excise tax on public health Previous studies showed clear evidences between the consumption of unhealthy commodities and death and disease ratios For alcohol consumption, the meta-analysis conducted by Corrao, Bagnardi, Zambon, & Vecchia (2004) which reviewed 156 papers from 1966 to 1988 on the correlation between alcohol consumption with 15 types of diseases showed that person who consumes a dose of more than 100g alcohol per day would have 26.52% higher risk for getting liver cirrhosis, 6.45% for oral cavity and pharynx cancer, 4.70% for hemorrhagic stroke, 4.37% for ischemic stroke and 3.86% for larynx cancer These risk ratios are calculated with 95% confidence interval For tobacco consumption, previous studies on the risk for smokingattributable death have been documented for China (Peto, Lopez, Boreham, & Thun, 2003) which has similar smoking patterns to Vietnam While Lam et al., (1997) obtained a higher risk, other studies (Henderson, Yu, Yuan, Ross, & Gao, (1996); Chen, Xu, Collins, Li, & Peto, (1997); Liu et al., (1998) showed that tobacco ultimately kills 30-40% of all people who use it For SSB consumption, Malik & Hu (2012) reviewed 08 previous studies on the correlation between SSB consumption and type diabetes and stated that the individuals in the highest category of SSB intake (usually 1–2 servings/day) had a 26% (RR 1.26; 95% confidence interval, 1.12–1.41) greater risk of developing type diabetes compared to those in the lowest category (none or