Proposing the adjustment of environmental taxes contributes to limiting petrol smuggling

If the proposal of tax increase is approved, the amount of environmental protection tax collected from petroleum will be estimated to be 55,591 billion VND per year, an increase of about 14,863 billion VND. Photo: H.V.

Suggest to increase maximum

The Ministry of Finance has officially solicited the comments on the draft Resolution on the environmental protection tariffs with many changes in tax rates of the commodities, especially petrol. Specifically, from July 1st, 2018, the environmental protection tax rate for petroleum products is proposed to increase to the maximum of the regulatory framework

Explaining the reasons for the above proposal, Mr. Pham Dinh Thi, Director of the Tax Policy Department, the Ministry of Finance, said that this proposal aimed at institutionalizing the views and guidelines of the Party and the State's policies on improving the financial policies towards sustainable development and aimed at restructuring the State budget revenues, at the same time, implementing the objectives of environmental protection tax reform, and formulating a uniform tax system.

In addition to implementing the above views and guidelines and to develop the economy sustainably in association with environmental protection, according to Mr. Thi, the proposal of the Ministry of Finance on raising the environmental protection tax also derived from the reality of integration. Currently, Vietnam has joined 11 Free Trade Agreements (FTAs). Especially petrol, the import tax rate committed under the WTO was 40%, but the preferential tariff of the FTAs was only 20%. According to the implementation schedule of the FTAs, we would have to reduce the import tax of petrol gradually to the most preferential level for both petrol and oil by 0%. Particularly, in the preferential import tariffs from ASEAN, the import tax has been 0% since 2015.

In particular, the retail price of petroleum in Vietnam has been basically lower than that of countries sharing the border in particular and many other countries in ASEAN and Asia in general. According to the rankings of the Global Petrol Prices website, on November 27th, 2017, Vietnam's retail petrol price stood at 45 from low to high among 167 countries (lower than 122 countries) at 18,580 VND per liter, lower than the three countries sharing the border with Vietnam (Laos is 5,304 VND per liter, Cambodia is 2,988 VND per liter, China is 1,650 VND per liter) and lower than some countries and other territories in ASEAN, Asia (such as lower than Singapore at 18,560 VND per liter, Philippines is 3,892 VND per liter, Hong Kong is 27,974 VND per liter).

As such, the increase in the environmental protection taxes will contribute to the impact reduction of tariff reductions under the international commitments and the adjustment of existing MFN tariffs to the special preferential tariffs under the free trade agreements in order to avoid the different tariffs for the same product. In addition, the increase of environmental protection tax on petrol as above will ensure the retail price of petrol in Vietnam being equivalent to the petrol price of other countries in the region, and contributing to limiting petrol smuggling.

Encourage the use of saving energy

Considering the impact, in fact petroleum is a product containing many pollutants such as lead, sulfur, benzene, aromatic hydrocarbons, heavy hydrocarbons and some additives… They are harmful for safety and health, and to the environment, in which exposure to benzene for a certain period of time might cause the potential risk of cancer. Therefore, the increase of environmental protection tax rate for petrol will promote economic use and efficiency energy savings; helping to promote using environmentally friendly fuel products such as gasoline E5, thereby reducing the negative impact on the environment.

As for the retail price of petroleum, according to Decree 83/2014/ND-CP of the Government on business of petrol and oil, the environmental protection tax was one of the basic factors constituting the base price. Accordingly, when the adjustment plan of the environmental protection tax rate for petrol was only 1,000 VND per liter for petrol and if the crude oil price does not fluctuate much, other factors constituting the petrol base price remained unchanged, The impact on the petrol price would be as follows: For gasoline, the rate of increase for environmental protection tax in the selling price would be about 4.9%; for diesel about 3.2%; for mazut oil about 8.9%; for lubricants about 0.6% and for grease about 2.3%.

However, according to the Ministry of Finance, because petroleum was a product containing chemicals that affects the environment adversely on a large scale even when not used, so that, the adjustment of the environmental protection tax rate for petrol would encourage the economic and efficient use of energy products. This in turn promotes the use of environmentally friendly fuel products, thus reducing negative impacts on the environment. According to calculations, the current environmental protection tax rate for fossil fuel petrol is 3,000 VND per liter, the environmental protection tax rate for the E5 petrol is lower than 150 VND per liter. With an estimated environmental protection tax rate for fossil fuel petrol of 4,000 VND per liter, the environmental protection tax rate for E5 petrol is lower than 200 VND per liter, reducing 50 VND per liter compared with current price. E5 petrol prices will be lower than fossil fuel prices. With the regulation, the excise tax of E5 petrol is lower than fossil fuel petrol, the increase of the environmental protection tax rate for fossil fuel petrol as above will create a difference between the E5 petrol price and the fossil fuel petrol price, thereby contributing to encouraging the production and use of bio-fuel, and limiting the use of fossil fuels which pollute the environment.