Environmental tax hike a cause for concern

Thursday, Jan 19, 2017 09:16

A Ministry of Finance proposal to increase the environmental protection tax on oil and gas consumption from the current VND3,000 (US$0.13) to VND8,000 per litre has generated concerns about impacts on daily life and production. Lao Dong (Labour) and Tin Tuc (News) newspapers discussed the issue with Vu Khac Liem, deputy director of the ministry’s Tax Policies Department and Truong Minh Hoang, vice chair of  the NA Committee for ScienceTechnology and Environment.

Vu Khac Liem

Vu Khac Liem, deputy director of the Finance Ministry’s Tax Policies Department

Why has the Finance Ministry made this proposal?

The proposal aims to prepare for Viet Nam’s deeper integration into the world economy after many international commitments take effect. Specifically, over the past 10 years, the State budget has depended a lot on tax collection from import-export products and special consumption tax. In the future, the reliance on import taxes has to reduce as the country will have to reduce tariffs under Free Trade Agreements (FTAs) that it has signed. The increase in environmental protection tax would create a foundation to offset decreasing collections from import-export tax. In addition, the environmental protection tax is stipulated by the Law on Environmental Protection. We have a legal foundation for adjusting the tax as well.

So can it be said that the hike is not expressly for protecting the environment?

Of course the tax aims to contribute to improving the environment. However, it can’t be said that every cent of the environmental protection tax is directly spent on the environment. The tax will be collected to the State budget and then the Government will decide to spend it directly or indirectly to benefit the environment.

Wouldn’t petrol prices increase if the environmental protection tax increases?

It should be clearly understood that this is just a proposal to adjust a common framework. The specific tax levels will be carefully calculated and adjusted following the country’s socio-economic conditions, the economy’s and businesses’ competitiveness. The ministry will not reduce the economy’s competitiveness for increasing State budget collection. The higher tax framework need not mean high tax levels. The framework will be used for reference and the Government will report suitable tax policies to the National Assembly Standing Committee.

Even if the new framework is approved, the environmental protection tax is unlikely to increase; it could even decrease. The Government would make suitable calculations to ensure that domestic retail petrol prices are equal to other countries in the region. It would have to ensure the economy’s competitiveness while preventing petroleum smuggling. We must maintain general price levels that match those of other countries in the region.

How can the ministry argue that this adjustment would not impact the economy?

This is just a proposal, and we have not made comprehensive assessments of its negative economic impacts. If the plan is to increase the tax from VND3,000 to VND4,000 per litre, we would have specific assessments on how it would affect the transport and electricity sectors. The adjustment would also depend on the import tax at that time.

Why did the ministry not consider tax decreases to reduce expenses for businesses and people, thus stimulating the economy?

I think tax reduction is not the only way to support people and businesses. The Finance Ministry has provided a lot of support through financial and credit policies. We are responsible for supporting firms and people. A slight tax increase does not mean removing the support. The ministry will have other forms of support in programmes for particular population segments. This issue should be understood in a broader sense.

So people can rest assured that petrol prices will not surge?

Yes. I want to affirm that this is just a proposal to collect ideas from other ministries and localities, then submitting them to the National Assembly. The hike would be considered in several steps.

Truong Minh Hoang

Truong Minh Hoang, Vice Chair of the NA Committee for ScienceTechnology and Environment

What do you think about the Finance Ministry’s proposal to increase the environmental protection tax on petroleum products?

This is just a proposal from the ministry. According to the current laws and regulations, the draft law must be assessed by the Ministry of Justice, the Government and Budget and Finance Committee before it is submitted to the National Assembly.

My opinion is that the ministry should make a careful assessment on the social impacts of this proposal. I meet often with petrol consumers. The tax hike will surely affect petroleum prices, thus affect the daily life as well.

Can you explain your assessment a bit more?

Firstly, the ministry should clarify the purpose of the proposal. If it aims to ensure spending for environmental protection and reducing individual vehicles, there can be several different solutions. For example, the country should improve its infrastructure, like roads and public transportation.

Then there are economists who say that tax hike on environmental protection aims to offset a drop in State budget revenues when implementing integration commitments. We can have many different ways to offset this, by cutting spending, for instance, by reducing unnecessary staff and carefully managing the use of public assets.

In reality, if the tax hike is approved, retail petrol prices will surely increase, and the prices of goods and services will also increase. This would limit purchases and slow down production.

Statistics from the Finance Ministry showed that tax on environmental protection has been continuously increased in the past few years while the spending on environmental protection has been low. Will the spending on environmental protection increase if the tax is increased?

I am worried about this issue. Of course, the ministry will have to clarify direct investment for environmental protection, its effectiveness and so on. — VNS

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