Experts view: Proposal to increase the environmental protection tax is reasonable

From July 1, 2018, the environmental protection tax for petroleum products has been proposed to increase to the highest level as per the provision by the Law, specifically from 3,000 VND/ liter to 4,000 VND/ liter. According to the Ministry of Finance, the proposal aims to improve the financial policy towards sustainable development and restructure the State budget, as well as improve the environmental protection tax, and develop a comprehensive tax system. Do you think it is reasonable?

Assoc. Prof. Dr. Le Xuan Truong

Assoc. Prof. Dr. Le Xuan Truong:

- Petrol is an important commodity under the State's prices management, due to this, it is an important input of the transportation business and some other production sectors, as well as fuel for people's vehicles. The increase of environmental protection tax on gasoline not only affects the state budget revenue but also affects the market price and people's lives. Therefore, each proposal to increase or reduce the environmental protection tax for petrol must be carefully considered and the Ministry of Finance know this very clearly.

Starting from the practical conditions, I think that the increase of environmental protection tax for petrol as proposed by the Ministry of Finance is necessary and reasonable. Necessary for three reasons. Firstly, to ensure budget revenues in the context of the petroleum import tax reduction under the FTAs. Secondly, before proposing to increase the environmental protection tax for gasoline, the tax on petrol has decreased and the State has to accept reduced budget revenues to support businesses and people, so it is time for businesses and people to share with the State. Thirdly, it is to help Vietnam's petroleum price be able to compete with that of other countries in the region, and it would reduce the pressure of petroleum smuggling for State agencies. The proposed increase is to ensure the harmonious sharing of interests of the State, enterprises and consumers.

Assoc. Prof. Dinh Trong Thinh:

Currently, in many countries around the world, the environmental protection tax for petrol has been an urgent issue for many years and top of the agenda. It is necessary to understand the environmental protection tax for petrol not only in the consumption stage but also in the exploitation and processing. When it comes to mining, it needs to use chemical or physical tools, combustion to recover oil. This partly damages the environment. Therefore, countries around the world have paid attention to environmental protection tax for a long time and fully support the taxation of this item.

Assoc. Prof. Dinh Trong Thinh

Moreover, the proportion of environmental tax related to petrol in Vietnam is low. In many countries, besides environmental taxes, there are other taxes related to the environment as soon as the vehicle starts rolling, such as the environmental protection tax per kilometer of the car, and emission tax, and these are not levied here in Vietnam... Therefore, the demand for environmental protection tax increase is reasonable. Moreover, the proposed level remains within the framework stipulated by the law.

The environmental protection tax is an indirect tax, which is one of the constituents of the selling price of petrol. So with the increase as the Ministry of Finance proposed, how will the prices of petrol change after being applied.

Assoc. Prof. Dr. Le Xuan Truong:

- According to the current regulations, petrol is under the State’s price management and the environmental protection tax is one of the factors constituting the base price of petrol. From this base price, the petrol prices are determined on the market. Therefore, of course, the increase of environmental protection tax on petrol will increase the price of this item.

When proposed, the Ministry of Finance has certainly calculated the impact of environmental protection tax increases to the prices of this item. Accordingly, for gasoline, the rate of environmental protection tax increase in selling price is about 4.9%; for diesel is about 3.2%; for mazut oil is about 8.9%; for lubricants is about 0.6% and for grease is about 2.3%. This is a scientific and practical basis.

Assoc. Prof. Dinh Trong Thinh:

- Of course, the increase of environmental protection tax will affect much on the prices of petroleum products. But we also need to look at other aspects. Beside the proposal to raise taxes, the Ministry of Finance also suggests an import tax reduction for mineral oil and Ethanol. Obviously, there will be a gradual offsetting so as not to make the petrol price increase sudden.

Right after the Ministry of Finance collected comments on the proposed increase of environmental protection tax for gasoline. Along with the increase in petrol prices, most businesses are concerned that this will affect production and business activities. What do you think about this issue?

Assoc. Prof. Dr. Le Xuan Truong:

- Petroleum is an essential commodity, the demand is less elastic than the price. With the increase in the price as the Ministry of Finance calculated, there is no significant impact on reducing demand for this item. Basically, the increase of environmental protection tax will increase the petrol price. Thus, the most affected enterprises are transport enterprises. Transportation costs will increase pressure to increase freight and passenger costs, but the increase is not too high.

Assoc. Prof. Dinh Trong Thinh:

- The increase of petrol price will certainly affect the production and business activities of enterprises which are mainly operating with gasoline. Enterprises must accept and must understand that for many years, our gasoline prices have been much lower than other countries in the region because they are still protected by the State. However, at this moment, we have to accept the adjustment price according to the general trend of market economy, the State can not protect forever. Businesses and people need to share with the State as the budget is in difficultly.

Thank you, Sir!