|Nguyen Huu Tan, deputy director of the Tax Policy Department, expresses confidence in the infallibility of the new natural resource tax regime
The database for calculating natural resource tax rates (also known as royalty tax in Vietnam) shall be collected, summarised, and classified into new categories by tax offices. Would it possibly lead to illicit profit-making behaviours when the price brackets used to calculate natural resource tax rates are different from the market price?
The tax regime to calculate natural resource tax is set by the Ministry of Finance (MoF). Meanwhile, revenues from natural resource tax are 100 per cent allocated to local authorities (except for those collected from crude oil and natural gas exploration and exploitation). MoF is thus not motivated by any kind of incentive to design tax brackets that do not closely follow the market.
The database of prices used in natural resource tax calculation has been centrally and uniformly constructed, as well as regularly updated by the General Department of Taxation so that MoF can develop the appropriate tax brackets. On this basis, the people’s committee of each city or province will introduce a scheme of resource tax rates in accordance with local circumstances. Sources of information forming the natural resource tax database usually come from tax declaration forms declared by taxpayers, customs declarations for export or import of natural resources and minerals, accounting reports and financial statements of enterprises, as well as the purchase prices on the market. Hence, as the tax regime closely sticks to the market price, it is hard to raise illegal profits from it.
However, the price brackets for natural resource tax calculation are too wide, with differentials ranging at 30-42 per cent. Is there any possibility where some localities may adopt the lowest rates of natural resource tax to enrich their budget and affect other localities?
According to the Law on Minerals, the state will develop a string of strategies and master plans on minerals to achieve sustainable socioeconomic development, national defence, and security in each period. Steps will be taken to ensure that mineral reserves are protected and exploited rationally, economically, and efficiently. The exploration and exploitation of minerals and natural resources must be in accordance with the strategies and master plans, while sticking to the protection of the environment, natural landscapes, historical-cultural relics, and tourist attractions, as well as securing national defence, security, social order, and safety. Exploiting natural resources and minerals must be guided by the principles of socioeconomic efficiency and environmental protection as its basic standards.
Additionally, these activities need to apply advanced mining technologies that are suitable to the scale and characteristics of each mine and each kind of mineral for maximum recovery. Therefore, not all localities with sizeable stocks of resources and minerals will charge the lowest natural resource tax to encourage further businesses in resource exploitation to increase their budget.
Moreover, according to Decree No.158/2016/ND-CP specifying the execution of a number of articles of the Law on Minerals, in order to explore and exploit natural resources, enterprises must satisfy a myriad of highly-demanding conditions on the minimum level of chartered capital and technology, among others. Thus, even if local authorities manage to adopt the lowest prices for natural resource tax calculation, it will not be easy to find qualified investors.
Even so, has it not happened that local authorities intentionally adopted the lowest natural resource tax rates to attract investment?
This tendency might have taken place before 2010, before the National Assembly enacted the Law on Minerals (amended). However, in recent years, it is no longer so. As the exploitation of natural resources is deeply related to transportation infrastructure as well as land or environmental pollution, there are hardly any local authorities taking the risk to cut down the price brackets on natural resource tax calculation, especially when it is likely to allow businesses to destroy the transportation infrastructure system and distress the environment.
Currently, before licensing the exploration and exploitation of mines under their management, local authorities must cautiously measure and calculate (the proportionate amounts of) natural resource tax, along with other benefits, against the damage costs or expenses that may come with the works. Therefore, if no actual benefits are in sight, localities will not seek to encourage exploitation activities. Besides, as the government has placed some restrictions on the export of raw materials, it is not easy to attract more businesses to the field anymore.
Then why is MoF building a natural resource tax regime that allows such a huge disparity between the lowest and highest tax rates?
The natural resource and mineral reserves vary between different mines. Natural resources and minerals are located everywhere, but are normally concentrated in areas with difficult or extremely difficult socioeconomic conditions, even in highland areas where there are no inhabitants, traffic or natural water sources.
Also, there are substantial gaps in the exploitation cost of a unit of mineral among different regions of the country. If a narrow and relatively constrained scheme of royalty-liable prices is applied, it might discourage the business of mining enterprises in areas with difficult socioeconomic conditions or extreme natural conditions.