Expert suggests revising petroleum taxes

Except for leaving a hole on state coffers, falling petrol prices have benefited most sectors of the economy. Why have you proposed a higher tariff on petroleum products?

Compared to other countries in the region, retail prices of petroleum in Vietnam are only higher than those in Indonesia and Malaysia, while being significantly lower than in most neighbouring countries (such as Laos, China and Cambodia). This could ignite petrol smuggling unless suitable measures (such as imposing higher tariffs on this strategic product) are taken.

What types of tax should be raised?

Petroleum products currently incur four types of tax, including import duty, environmental protection tax, special consumption tax and value added tax. Import duty revision (from zero to a maximum of 40 per cent) is under the purview of the Ministry of Finance (MoF). The MoF has several times revised import duty on petroleum products in the face of constantly falling petrol prices in the global market, now the rate stays at 35 per cent.

This import duty, however, according to the provisions of Vietnam’s commitment to the World Economic Organization, could not exceed 40 per cent, as the cap for petrol import duty is fixed at that rate.

In respect to value added tax (VAT), there exist at most two VAT rates worldwide (except for the zero per cent rate applicable on some export items). Vietnam currently applies 5 per cent and 10 per cent VAT rates, and petroleum products now fall into the latter category, making further adjustment implausible.

In this context, we could only consider increasing environmental protection tax and special consumption tax on petroleum products.

What type of tax should we raise first?

The environmental protection tax, because it takes a longer time to revise special consumption tax on petroleum products.

As far as I know, the government has trusted relevant government agencies to work on a resolution on revising the environmental protection tax on petroleum products.

At present, petrol (with the exception of ethanol fuel) is taxed VND1,000 per litre for environmental protection, the rate being VND500 per litre to diesel oil, and VND300 per litre to kerosene and mazut fuels. If nothing changes, in its upcoming session the National Assembly Standing Committee will consider increasing environmental protection tax to these products.

How will the economy fare when petrol prices drop to $50 per barrel, $40 or even $30 per barrel?

Provided that prices plunged to $50, $40 and $30 per barrel respectively, the world economy would be added 0.28, 0.26 and 0.23 basic percentage points, respectively, according to estimates by global financial institutions.

In Vietnam, our estimates show that the country’s GDP growth would pick up 0.48 basic percentage points in case petrol prices stood at $50 per barrel; if the prices dropped to $40 and $30 per barrel, respective increase would be 0.61 and 0.75 basic percentage points, thanks to more buoyant import-export activities.

Low petrol prices are ideal to contain inflation. We expect the inflation rate to hover around a mere 2.7 per cent this year.