The Ministry of Finance has decided against cutting petrol prices but instead will raise import duty on petrol and increase the petroleum price stabilisation fund, aimed to balance benefits amongst gasoline companies, state and consumers.
Bike riders get petrol refilled at a Petrolimex station in Ho Chi Minh City |
This decision was reached at a meeting with the Ministry of Industry and Trade on June 10.
The tax imposed on diesel and kerosene will be raised to 5 per cent from 0 per cent and at the same time petroleum companies will have to contribute VND100 more for every liter of gasoline sold, towards the price stabilisation fund.
Import tax exemption will be maintained for gasoline and fuel oil.
The price of crude oil fell by 5 per cent in the world market by June 15, with crude oil to be delivered in July going for $94.81 per barrel, the lowest since mid February 2011.
Domestic fuel prices are meant to fluctuate following changes in global prices since they are regulated under the market mechanism. However, they have remained unchanged, despite global prices dropping sharply during the past month.
The ministry said that in the past, the fuel market was regulated in a way that allowed the state, firms and consumers to share benefits.
For instance, in the last months of 2010, though the world petrol price went up, the ministry didn’t allow any hike in domestic retail prices and slashed the tax rate on gasoline and diesel to 0 per cent in mid January 2011, while continuing to adjust the tax duty on fuel oil down to 0 per cent on February 24.
The tax cut caused a loss of VND20.136 trillion for the state budget from 2010 to June 10 this year, of which VND10.047 trillion was lost during the period starting February 24 this year.
The ministry said to recover the loss, it will raise the import tariff and increase the stabilisation fund but will not ask gasoline firms to reduce retail prices, as consumers have expected.
The ministry added that a clear picture for future pricing has yet to emerge since the world price fluctuation last month. The present move will bolster the fund and help cushion future price hikes.
The ministry said if fuel prices were to be adjusted in line with the market mechanism, according to the government decree issued in 2009, gasoline retail prices had hiked by VND1,000 per liter in late April 2011. The ministry asked gasoline wholesalers to keep prices unchanged, to help curb inflation.
Petrol firms are worried that gasoline will no longer be exported illegally via the country’s borders but will be transported illegally into the country.
Domestic gasoline prices in Vietnam are currently five per cent higher than in neighboring Laos and Cambodia, forcing Vietnam to deal with smuggling.
Firms say that since the world market is facing constant price fluctuation, the ministry should not impose import duties on gasoline but regulate domestic prices by using the stabilisation fund.
Meanwhile, economists say gasoline prices must be adjusted in line with market mechanism, which means that domestic prices will go up and down following hikes and drops in world prices.