Environment tax cut on gasoline deemed too little

The tax, a flat VND4,000 ($0.18) on gasoline and VND2,000 on diesel, could be cut to VND3,000 and VND1,500 for the rest of 2022, the Ministry of Finance said last Friday.

But with gasoline prices now at an all-time high of nearly VND27,000 per liter, the reductions do not meet the expectations of companies and consumers.

Nguyen Manh Hung, sales director at a transport company, said surging gasoline prices are a further financial burden for Covid-19-hit transporters.

He pointed out that with diesel prices going up by 23 percent since December the cost of a north – south shipment has shot up by VND2 million.

“It is not much of a change to cut environment tax on diesel by a fourth, which only lowers prices by VND500 a litre”.

He called for cutting the tax by half to foster a post-pandemic recovery by the transport industry.

The Vietnam Chamber of Trade and Industry, an organization that represents the business community and associations in the country, called the tax cut “low” in a comment to the Ministry of Finance and said it needs to be reduced further.

A further cut is possible since the government’s revenues have been positive in the first two months of the year, and Vietnam benefits from any rise in crude oil prices as an exporter, it said.

It too called for a 50 percent cut in the tax, but only for the next three to six months rather than the rest of the year, saying oil prices could fall.

Experts deemed the current proposal ineffective especially considering global oil prices are expected to soar further due to the Russia-Ukraine conflict’s effect on supply.

According to the General Statistic Office (GSO), the consumer price index was up 1.68 percent year-on-year in the first two months as a result of the surging gasoline prices.

It is estimated that the 25 percent reduction in environment tax will bring the CPI down by only 0.15 percentage points.

Nguyen Bich Lam, a former head of the GSO, said the tax cut “is a good sign, but will not help much with easing financial pressure, reducing inflation or supporting a recovery”.

He proposed a minimum cut of 50 percent to boost recovery saying high fuel prices would have a ripple effect on customers, industry and the economy as a whole.

Since the environment tax is just one of several taxes and fees that account for 43 percent of gasoline retail prices currently, many analysts said the government could also consider cutting others to stabilize the market.

Bui Ngoc Bao, chairman of the Vietnam Petroleum Association, said the special consumption tax on oil should be a flat one rather than proportionate as it is now.

Currently it is 10 percent on fuel, and Bao described it as “unreasonable”.

Lam suggested a lowering of import, value-added and special consumption taxes for a short period to ease the financial burden caused by soaring fuel prices.

He pointed to Thailand, which cut special consumption tax on diesel by 50 percent this month.

The government’s revenues would be higher in the long term if lower fuel taxes speed up economic recovery, he correctly pointed out.

The Ministry of Finance is seeking feedback on its tax cut proposal, deputy minister Nguyen Duc Chi said.