GIZ’s concepts support green growth reforms in Vietnam

Henri Pierre Gebauer, team leader on economic governance and green growth at GIZ

What is your assessment on Vietnam’s progress and the difficulties it could face when cultivating green economic policy?

Vietnam has come a long way in implementing green fiscal instruments. On the revenue side, measures include the environmental protection tax and natural resources tax. On the expenditure side, a threshold of 1 per cent of the total annual state budget expenditure for environmental protection has been implemented since 2006.

These instruments are supplemented by measures such as tax incentives for electric cars, lower tax rates for biofuel, preferential corporate income tax rates and exemptions for enterprises investing in environment and climate change mitigation technologies, and green credit policy.

With the adoption of the National Green Growth Strategy in 2012, the government set an ambitious framework for the shift of the growth model towards a green economy. Implementation should now be directed towards accelerating the process of economic restructuring, making best use of green fiscal instruments, and incentivising public and private investment in the green economy.

What are the main impacts of German support to the Ministry of Finance (MoF) here on green fiscal instruments, and what has been achieved so far?

Since the implementation of the environmental protection tax (EPT) in 2012, meaningful positive impacts have been reached. The EPT introduced a comprehensive package of taxes targeting pollutants such as fossil fuels, coal, plastic bags, and more. It also consolidated existing tax and fee instruments into a single tax regime.

The objective of the EPT is to shift to a more economical and efficient use of natural resources and contribute to environment protection by implementing a ‘polluter pays’ principle.

The EPT has contributed to decrease total carbon dioxide emissions by 1.7 per cent in 2012 and 2013, and is expected to generate 4.8 per cent of total state budget revenue in 2019, with total collection reaching an estimated VND68 trillion ($3 billion). Since implementation the tax rates have been increased twice. The EPT revenues are not earmarked and thus assigned to the general state budget, which makes public acceptance of the tax more challenging as the revenue use is not directly assigned to the task of environmental protection or other specific objectives.

What are the main contents of the green finance and fiscal instruments with which GIZ is supporting the MoF?

Notably, we have been accompanying the ministry during the preparatory stages of the EPT law. Based on a careful impact assessment taking into consideration social, environmental, and economic aspects, we have been advising on the policy design.

We also support the MoF in development of a concept for comprehensive green fiscal reform, and in its implementation. The MoF’s Green Growth Action Plan for the financial sector includes specific measures such as the introduction of green public procurement, fees for environmental protection including charges on wastewater and mineral exploitation, and green credit policy.

What should the government and the MoF in particular do to implement this in the most effective way?

With climate change, tax and expenditure systems will need to adapt to fiscal consequences and provide the necessary resources and mechanisms to mitigate and adapt to its impacts.

In the medium-term, the EPT should be revised to increase its effectiveness. One option in line with international best practice is the introduction of a carbon price – for example, integrating a carbon tax within the EPT – sufficiently high enough to drive transition towards a low-carbon economy. This would raise substantial additional revenues and have significant positive climate and environmental impacts. Policymakers can choose to redistribute parts of the revenue to the poorest households, lower other taxes, or use revenues partly for environmental purposes.

State budget expenditure for environmental protection should also be reviewed according to the effectiveness criteria, and the scale of spending assessed to better reflect the needs for environmental protection.