Ministry of Finance proposes to reduce 50% of environmental protection tax on aviation fuel

It is forecast that the aviation industry will continue to face difficulties in the future. Source: Internet.

Sharing difficulties with the aviation industry

In 2020, in order to promptly remove difficulties for the aviation industry before the impact of the Covid-19 pandemic, the National Assembly Standing Committee issued Resolution No. 979/2020/UBTVQH14 and Resolution No. 1148/2020/UBTVQH14, stipulating the environmental protection tax rate for aviation fuel from August 1, 2020 to December 31, 2021 is VND2,100/liter (down 30% compared to the provisions in Resolution No. 579/2018/UBTVQH14).

According to the Ministry of Finance, the aviation industry is one of the industries that have suffered heavy losses due to the Covid-19 pandemic. The 30% reduction in the environmental protection tax rate for aviation fuel has brought certain positive effects to this industry.

For example, according to a report of the Vietnam Airlines Corporation, the implementation of the above policy has helped businesses reduce VND155 billion of environmental protection tax on aviation fuel in 2020 and is expected to reduce VND164 billion in 2021.

In addition, the Ministry of Finance also assessed that the reduction of environmental protection tax on aviation fuel was an appropriate policy which was in line with the guidelines and views of the Party and State in removing difficulties for those affected by the Covid-19 pandemic, showing the concern and support of the Party, State and Government to share difficulties with businesses.

Moreover, the reduction of environmental protection tax on aviation fuel still ensures that it does not affect the environmental protection objective of the tax policy because it is only applied during the Covid-19 pandemic. In fact, during the application of the policy, the demand for air transport decreased, so the consumption of aviation fuel does not increase compared to before the outbreak of Covid-19.

According to a report by the Ministry of Finance, the amount of environmental protection tax collected from aviation fuel has decreased by VND1,072 billion from August 2020 to the end of September 2021. Total state budget revenue including environmental protection tax and value added tax for aviation fuel during this period also decreased by VND1,179 billion.

The reduction in environmental protection tax is part of the State's financial support to help reduce the cost burden for the aviation industry, which is facing many difficulties due to the impact of the Covid-19 pandemic.

Proposing to reduce the tax rate by 50% compared to current regulations

The Ministry of Finance recognized the application of environmental protection tax on aviation fuel as revenue when using aviation fuel. However, due to the implementation of social distancing, the aviation industry in general and air freight enterprises, in particular, had to limit operations, even at times, the aviation industry was almost frozen. Therefore, the policy of reducing the environmental protection tax rate from August 1, 2020 to the end of December 31, 2021 could not fully promote the goal of supporting businesses.

Specifically, according to a report by the Vietnam Aviation Business Association, it is forecast that in 2021, the number of flights would continue to decrease and the loss in 2021 would be larger than the loss of VND16 trillion in 2020. While revenue decreased sharply, the airlines still had to spend money every month to pay for aircraft rental, pay bank loans, pay input suppliers, maintenance and pay staff salaries.

The aviation industry will continue to face difficulties in the future because aviation businesses are facing a very high risk of bankruptcy due to the impact of the Covid-19 pandemic. That will also cause many economic consequences such as loss of national airline brand and image, disruption of domestic and international flight networks.

Therefore, in order to fully promote the goal of supporting aviation enterprises to overcome difficulties, when business activities return to a new normal situation, the Ministry of Finance believed that it needed to implement a policy of reducing environmental protection tax on aviation fuel in 2022.

The Ministry of Finance proposed the Government to submit to the National Assembly Standing Committee to stipulate that the environmental protection tax rate for aviation fuel from January 1, 2022 to the end of December 31, 2022 is VND1,500/liter, a reduction of 50% compared to current regulations.

The proposal to increase the reduction of environmental protection tax on aviation fuel from 30% to 50% is to contribute to further supporting the aviation industry; at the same time, ensure that it is suitable with the state budget capacity and suitable with the post-pandemic economic recovery and development program.

According to calculations by the Ministry of Finance, if flight routes are operated as in 2020, it is expected that the amount of environmental protection tax on aviation fuel will decrease by about VND1,725 ​​billion, thereby reducing State budget revenue by about VND1,898 billion (including environmental protection tax and value added tax).

In case the flight route operates as in 2021, it is expected that the amount of environmental protection tax collected from aviation fuel will decrease by about VND1,260 billion, thereby reducing revenue collection by about VND1,386 billion (including environmental protection tax and value added tax).

And if calculated on the basis of the average consumption of aviation fuel from January 2020 to September 2021 (generally for the period since the outbreak of the Covid-19 pandemic) is about 80 million liters/month.

It is forecast that the amount of environmental protection tax collected from aviation fuel will decrease about VND1,440 billion. Since then, the state budget revenue will reduce about VND1,584 billion (including environmental protection tax and value added tax).