Environment tax increase will not raise gasoline retail price in Vietnam

Gasoline prices in Vietnam will not rise when a higher environmental tax is slapped on the fuel in May this year, a senior official from the Ministry of Finance has said.

The 200-percent tax hike, which will bring the rate per liter from VND1,000 to VND3,000, will help offset about 84 percent of the loss, to be caused by a cut in tariffs on gasoline imports, for the state budget, Dinh Nam Thang, deputy director of the Tax Policy Department under the Ministry of Finance, told Tuoi Tre (Youth) newspaper on Wednesday last week.

The government last week got the green light to raise the environment tax on gasoline by 200 percent starting in May to mitigate losses, which will result from a reduction in fuel import duties applicable that same month.

The new environment tax rates will be VND3,000 (13 US cents) per liter for gasoline and jet fuel, VND1,500 per liter for diesel fuel, and VND900 per liter for kerosene a plan presented to the National Assembly Standing Committee last Tuesday.

Environment tax and import duties slapped on gasoline are included in the core structure of the retail price, Thang said.

Even though environmental taxes triple, at the same time the ministry will have to reduce the import duty on the commodity under international commitments.

According to the Tax Policy Department's calculations, the cut in import duty is even greater than what the new environmental tax rate will bring in.

Specifically, with the fall in import duty and special consumption and value-added taxes, the state budget will see a VND28.25 trillion (US$1.33 billion) drop in tax revenue collected from gasoline sales every year between 2015 and 2017.

Meanwhile, the additional revenue of VND2,000 dong per liter through the environmental tax will bring in VND23.68 trillion a year during the period, he said.

"Thus, the increase in the environment tax will not result in a gasoline price increase. The petrol price increase, if any, is only due to changes in the market, and not because of the environmental tax rise,” Thang said.

The tax hike will only offset about 84 percent of the reduction in government revenues while reducing the import duty under international commitments, he added.

According to the vice head of the Tax Policy Department, the environmental tax increase will also create a stable source of revenue for the state coffers instead of depending on other sources required to be cut through international commitments.

According to the commitments listed in free trade agreements within ASEAN, including the ASEAN Trade in Goods Agreement (ATIGA), ASEAN-China Free Trade Area (ACFTA), and ASEAN-Korea Free Trade Agreement (AKFTA), Vietnam has to cut and eventually eradicate all import taxes on gasoline by 2024.

The environmental tax rise will also help the ministry achieve many other long-term goals. One of them, according to Thang, is to create conditions to encourage biofuel use to reduce environmental pollution.

E5 RON 92, a biofuel intended to replace the commonly used RON 92 gasoline, will be widely sold across the country by the end of this year following a decision by the Prime Minister late last year.

Previously, seven localities, including Hanoi, Ho Chi Minh City, Da Nang, Hai Phong, Can Tho, Ba Ria-Vung Tau Province and Quang Ngai Province were required to sell the biofuel at all local gas stations starting on December 1, 2014, under a government plan to boost consumption of the fuel, which is believed to be better for the environment.

The retail gasoline price last Wednesday was raised by VND1,600 per liter by the ministries of industry-trade and finance to VND17,280-17,880 per liter, ending a chain of gasoline price cuts that began in early July of last year.