A state-run Vietnamese chemical giant is under criticism from local fertilizer makers for its recent call on the Ministry of Finance to increase import duties on several fertilizer products, a proposal reportedly only meant to recover some of its loss-making subsidiaries, while affecting millions of farmers.
The Vietnam National Chemical Group (Vinachem) has proposed that urea fertilizer should be subject to a seven percent import duty, while the rate for NPK (nitrogen, phosphorus and potassium) and DAP (diammonium phosphate) fertilizer is advised to be eight percent.
Import duties ranging from zero to six percent are currently slapped on the said products, depending on their type.
The tax increases are necessary as four local urea fertilizer plants are suffering losses of some 685,000 tons of unsold products, whereas fertilizer imports have been on the rise since late 2013, Vinachem insisted.
The state-run chemical giant’s fertilizer operations posted a 10.6 percent year-on-year decline in revenue in the first four months of this year.
Dam Ninh Binh, a Vinachem-invested urea maker based in the northern province of Ninh Binh, is also facing challenges in operations as the facility was only commissioned in late 2012.
The finance ministry said it is collecting feedback from relevant ministries and departments on the Vinachem proposal.
The import tariff for urea fertilizer had been increased from zero to three percent since the beginning of this year, and it could be doubled to six percent given the surplus supply from local urea makers, according to the ministry.
The six percent tax rate is also the ceiling rate Vietnam had committed to levy on the fertilizer product during negotiations to join the World Trade Organization.
However, it would be against the same commitment if the import duties for DAP and NPK fertilizers were hiked to eight percent, the ministry noted.
A representative of a major fertilizer maker in northern Vietnam said the proposal is merely intended to assist Vinachem’s Dam Ninh Binh plant.
“The urea prices of Dam Ninh Binh are uncompetitive compared to Chinese products,” he said, asking not to be named.
“Import prices of Chinese urea fertilizer are expected to be lowered in the coming time, so even with a six percent tax rate, it is uncertain that local businesses will source products from Dam Ninh Binh.”
Tran Ngoc Thiem, who runs a fertilizer store in Hanoi, said Vinachem made false arguments when it said the import tax must be increased to save local fertilizer makers from unsold stock and losses.
“Fertilizer makers such as Dam Phu My, Lan Lam Thao, and Dam Ha Bac are operating at a gain,” he said.
The only two loss-making companies, Dam Ninh Binh and Dam Dinh Vu, are both owned by Vinachem, he added.
If approved, the tax increases will only benefit these two companies, while millions of farmers will have to pay more to buy the fertilizers.
Imported fertilizer products are on sale at VND6,700 a kg, including taxes and fees.
“Under the higher import duties, the prices could rise to VND7,000 a kg, while locally made products currently sell at more than VND7,000 a kg,” Vu Duy Hai, general director of Vinacam Co, said.
“So farmers might still buy imported products even after the import duties are hiked, and it will cost them a considerable amount of extra money.”
Other fertilizer businesses and company owners also protested that the proposal is unreasonable as it is meant to benefit an interest group.
“Fertilizer prices will surge if the import taxes are increased,” Nguyen Duy Luong, deputy chairman of the Vietnam Farmer Association, said.
“Higher import duties would help the fertilizer makers, but it means turning back to farmers.”