Proposal to reduce MFN tax rates on many items

	Detect sophisticated tricks in trafficking petroleum products on sea
	Balance of Petroleum Price Stabilization Fund remains about VND310.8 billion by the end of QII
	Officially reducing import duty of petroleum products to 10%

Imported petroleum tank of Thien Minh Duc Group JSC. Photo: H.Nu

Petrol products will have a 10% MFN tax rate

The Ministry of Finance has received recommendations from several agencies on reducing the preferential import tax rates for petrol products to diversify supply amid changes in the world petroleum market.

In order to contribute to stabilizing petrol and oil prices, curbing inflation and supporting the recovery and development of production and business, on August 8, 2022, the Government issued Decree 51/2022/ND-CP amending the preferential import tax rate for petrol products in Heading 27.10 in the Preferential Import Tariff according to the List of taxable goods.

Accordingly, HS 2710.2.2x unleaded motor petrol will reduce from 20% to 10%.

However, in addition to unleaded motor petrol, Heading 27.10 also includes substitutes for petrol, which is a product derived from oil but has octane content different from motor petrol and is used as input material for manufacturing or industries such as paint or gasoline blending with HS codes HS 2710.12.31, 2710.12.39, 2710.12.40, 2710.12.50, 2710.12.60, 2710.12.70, 2710.12.80, 2710.12.91, 2710.12.92, 2710.12.99 which are applying the MFN import tax rate of 20%.

The FTA tax rates of these products under FTAs (ATIGA, VKFTA, etc.) are now also 10% or lower (5%, 8%, 10%).

Therefore, to comply with the MFN tax rate for unleaded motor petrol which has been revised from 20% down to 10%, help reduce input material prices for manufacturing industries and ensure compliance with the principle of promulgating the Tariff schedule whereby the tax rate of raw materials is lower than that of finished products specified in the Law on Import and Export Duties, and avoid problems in the classification of the customs agency, the Ministry of Finance has proposed to reduce the tax rate for these petrol products to be equal to import tax rate of MFN for unleaded petrol of 10%.

For Ethanol products, HS code 2207.20.11, 2207.20.19 has an MFN tax rate of 15%. The special preferential tax rate under ATIGA and VKFTA for Heading 22.07 is 0%. This is the type of alcohol (Ethanol) used in industry. Import turnover in 2021 was US$48.7 million, of which imports from the US accounted for about 62%. In Decree 57/2020/ND-CP, the Government has revised down the HS code 2207.20.11 from 17% to 15% and HS code 2207.20.19 from 20% to 15%.

In the context of high domestic and world petrol prices accompanied by a shortage of petrol supply, the import of ethanol will make up for the shortfall of mineral gasoline. Environmental protection taxes and excise taxes also provide incentives for ethanol products. In principle, the tax rate is lower than the import tax rate of mineral gasoline but still ensures room to negotiate for the tariff under the upcoming FTAs. The Ministry of Finance proposes to reduce the tax rate for ethanol from 15% to 10%.

Import tax rate revised down to 0%

Some other items have been also proposed to reduce import tax to 0%, such as VGO (raw materials, intermediate products for oil refineries) and used to increase the output of valuable products in factories. The Ministry of Finance has also reduced the import tax on Residual items belonging to HS code 2713.90.00 from 5% to 0%.

This is the residue fraction of atmospheric distillation or vacuum distillation of crude oil. For Dung Quat Oil Refinery, the residue is an input material that is partially mixed with crude oil as raw material for crude oil distillation.

In addition to the two items mentioned above, condensate - a raw material extracted from nature resources has properties similar to crude oil but with light ingredients. According to the principle of promulgating tax schedules, tax rates, unprocessed raw natural resources and minerals are subject to high export tax rates to limit exports and low MFN import tax rates to encourage imports and protect unprocessed mineral resources in the country.

Accordingly, the Ministry of Finance proposes to reduce the normal import tax of HS code 2709.00.20 from 3% to 0% and HS code 2709.00.20 to 0% for raw materials for petroleum production.

Tax management to avoid impact on budget revenue

The Government's decision to reduce the 10% preferential import tax on unleaded motor petrol according to Decree 57/202/ND-CP, does not have much impact on the budget revenue, said the Ministry of Finance.

According to the Ministry of Finance, currently, petrol products are imported mainly from countries that have signed FTAs ​​with Vietnam, so they are eligible to apply the FTA import tax rate lower than the MFN import tax rate.

According to the General Department of Customs, in 2021, Vietnam spent US$475.26 million to import petrol and oil, of which imports from countries that have signed FTAs ​​with our country were US$474.1 million (accounting for 99.7%). Only in the first five months, Vietnam also mainly imported petrol and oil from countries that signed FTAs with total petrol imports of US$826.53 million. Thus, the low import value under the MFN tax rate, the reduction of the MFN import tax rate for petrol products will not have much impact on state budget revenue.

The Ministry of Finance explained, for unleaded motor gasoline, the 10% import tax rate reduction may reduce the state budget revenue, but the reduction is also low (about VND4.6 billion) because the above products are mainly imported from ASEAN countries, South Korea (according to special preferential import tax rates in FTAs ​​with South Korea and ATIGA).

Furthermore, the positive impact from the tax rate reduction also ensures compliance with the principle of promulgating the Tariff and tax rates specified in the Law on Import and Export Duties, creating favorable conditions for enterprises to reduce input prices in the context of continuous price increase of these items.

Or like VGO, according to the General Department of Customs, in 2021, the import turnover of commodities under HS code 2710.19.90 was about US$84.3 million (most imported from Korea, ASEAN, Taiwan, India, and China). The Ministry of Finance has proposed to reduce the MFN tax of HS code 2710.19.90 from 5% to 0% (equal to the import tax rate from ASEAN and Korea) to reduce input costs for domestic petroleum production and reduce the normal import tax rate to 0% to diversify the import market. The reduction of MFN tax and normal import tax of this item to 0% will reduce budget revenue by about VND39 billion/year.

As for VGO products under HS code 2710.20.00, the MFN import tax is already 0%, but the normal import tax is 5%. According to the import turnover of the General Department of Customs in 2021, the import turnover of this item was about US$99,000, of which the import value under the MFN import tax was USS$32,000, there was no import turnover according to the normal tax rate.

However, in order to diversify import sources under pressure from petrol and oil prices, the Ministry of Finance has proposed to reduce the normal import tax of HS code 2710.20.00 from 5% to 0%. This downward revision is expected not to reduce budget revenue.