What does the Ministry of Finance say about the increase of the environmental tax on oil and gas?

Mr. Pham Dinh Thi

The Ministry of Finance has issued a draft resolution on the tariff for environmental protection to seek public opinion, which proposed to increase the framework of many items. Could you tell us about the reasons why the Ministry of Finance made this proposal?

The Law on environmental protection tax is effective from January 1, 2012. Under this law, the environmental protection taxes are collected with 8 types of goods. After a period of implementation of the Law, many results have been achieved, but it is necessary to study and adjust the specific environmental protection tax rate of goods subject to environmental protection tax.

The first reason is to implement the policy of the Party, the State. The Politburo has issued Resolution No. 07-NQ/ TW on policies and measures to restructure the state budget and public debt management to ensure a safe and sustainable national finance, including reconstruction of state budget revenues.

In addition, the National Assembly has also issued the Resolution No. 25/2016/ QH14 on the National 5-Year Financial Plan in 2016-2020, proposing to complete the restructure of state budget revenues, make good exploitation of revenues from assets, resources and the environment.

In addition, at the 14th meeting of the Standing Committee of the National Assembly for collecting comments on the draft law on Amendment and Supplementation of the Law on Environmental Protection, while many supposed to expand taxable objects, adding some of the goods subject to environmental protection tax under the direction of sustainable economic development, the other proposed to make the scientific basis clearly for expansion of the framework and proposed that the Government may adjust the environmental protection tax rate while the National Assembly still allows.

The Ministry of Finance has reported to the Government and the Prime Minister has commented that the Ministry of Finance would coordinate with the Ministry of Justice and concerned branches in studying and proposing adjustments to environmental protection tax.

Besides implementing these views and in order to get a sustainable economic development associated with environmental protection, the Ministry of Finance proposes to increase environmental protection tax that must be derived from the reality of integration to ensure national interests in the situation of deep integration as implementing gradual reduction of import tax according to the international commitments; at the same time, it is suitable with the context of socio-economic development.

Currently, Vietnam has joined 11 Free Trade Agreements (FTAs). Especially gasoline, the import tax rate committed in the WTO is 40%, but the preferential tariff in the FTA is only 20%. According to the roadmap to implement the FTAs, we have to gradually reduce the import tax on oil and gas to 0%. Particularly in the preferential import tariff from the ASEAN, the import tax on oil has been at 0% since 2015.

Another reason is to overcome the limitations of the current EPT. According to the assessment of the implementation, the environmental protection tax rate for some commodities is low compared to the level of environmental impact when using these goods, which should be studied and adjusted suitably. For example with plastic bags, although it has specified certain taxes but the consumption of plastic bags is still very large, so this time we propose raising tax to the maximum level.

It is suggested that the proposal to increase environmental protection tax rate on oil and gas this time is to offset the shortfall of import taxes, in other words, to offset the budget. How do you explain?

We need to look at different perspectives. For oil and gas, now we are implementing FTAs and import tariffs are falling rapidly. The increase of other taxes can be said to be one of the sources to offset import revenues. However, on the perspective of environmental protection, it shows that oil and gas as well as plastic bags, HCFC is the product cause a very negative impact on the environment. Not only our country, but other countries in the world have also set the tax on oil and gas products to encourage people to use environmentally friendly products. For example as of January 1, 2018, we do not use gasoline A92 anymore but use E5. It is also a way of the environmental protection.

On the other hand, our current gas prices compared to countries sharing the borders, Asian countries as well as some countries in the world are low. According to the ranking of 167 countries, Vietnam ranks 45th from low to high. Thus, our retail price is lower than 122 countries.

If we raise tax rate as the proposal, how much will we get back to the state budget? What will be used for this purpose, Sir?

According to calculations in the project, the tax increase of all items are expected to increase revenue by 15.6 trillion vnd, of which petrol is nearly 8 trillion vnd.

Under the Law on State Budget, all tax revenues are concentrated on the state budget. On that basis, the expenditures will be allocated to tasks assigned by the National Assembly, including the task of environmental protection.

When will the tax increase adopt if it is approved, Sir?

The Ministry of Finance is proposing to apply new tariffs on July 1, 2018.

Thank you, Sir!