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Environmental tax on petroleum products may rise

Released at: 09:00, 25/02/2018

Environmental tax on petroleum products may rise

Photo from voh.com.vn

MoF proposal aimed at offsetting shortfall caused by fuel import tax cuts.

by Quang Huy

Vietnam is looking to increase the environmental protection duty imposed on fuel products from the current VND3,000 ($0.13) to VND4,000 ($0.18) per liter, according to a proposed amendment to the Environment Protection Law drafted by the Ministry of Finance (MoF).

Explaining the hike, which if approved would be applied from July 1, the ministry said it will add VND15.7 trillion ($690 million) to the State budget, offsetting a shortfall caused by a fuel import tax cut.

The hike is necessary because import taxes on oil and petroleum products are declining sharply, the ministry said, noting that the current import tax on petroleum products is 20 per cent and on oil products 7 per cent, and the rates will be slashed to 10 per cent and zero per cent in line with Vietnam’s tariff commitments.

According to the ministry, retail prices of oil and petroleum products are now lower in Vietnam than in neighboring countries and many other Southeast Asian countries.

Under a free trade agreement between ASEAN and South Korea, which came into effect in early 2016, the import tariff on gasoline imported from South Korea to Vietnam has fallen from 20 per cent to 10 per cent.

As a result, most Vietnamese traders who had imported gasoline from ASEAN countries switched to South Korean imports, because the import tariff on gasoline from the former remains at 20 per cent.

The MoF has also proposed an increase to the environmental protection duty imposed on oil products, by VND500-VND1,000 ($0.02-$0.04) per liter.

Fuel is a major source of revenue for Vietnam. Import tariffs from fuel, which are paid by local businesses, now account for around 7 per cent of State income.

With import tariffs set to be abolished as part of free trade deals, a higher tax would help sustain that income, experts said. But some industry insiders are concerned that the hike will not be welcomed. Mr. Nguyen Tien Thoa, former director of the MoF’s Price Management Department, said the hikes will draw a “reaction” from consumers and may affect consumption.

Vietnam imported 900,000 tons of various kinds of oil and petroleum products in January, totaling $552 million, for respective rises of 3.5 per cent and 10.8 per cent, according to the General Statistics Office.

It took in VND42.4 trillion ($1.86 billion) in revenue from environmental protection taxes in 2016, up nearly 57 per cent against 2015. Spending on environmental protection was just VND12.3 trillion ($534 million) in 2016, accounting for 29 per cent of tax revenue.

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