The Ministry of Finance (MoF) will submit a plan on reducing petrol and oil taxes to the National Assembly for approval at its October meeting.

The Government requested the MoF to report on the plan to reduce the retail price of petrol and oil on July 18.

Specifically, MoF was asked to continue to calculate the plans on cutting excise tax and value-added tax (VAT) for gasoline and also carefully evaluate the impacts of this reduction on the State budget.

In the current structure of petrol and oil retail prices, each litre of gasoline and oil covers four kinds of taxes, including 10 per cent import tax; 10 per cent VAT; an environmental protection tax of VND1,000 per litre; and an excise tax of 10 per cent for RON 95 petrol, 8 per cent for E5 petrol and 7 per cent for E10 petrol. Oil products are exempt from this tax.

Total taxes and other costs for petroleum products in Viet Nam account for 28-35 per cent of the retail price.

According to the Viet Nam Petroleum Association, the price for one litre of RON 95-III gasoline includes VND10,000 of tax and more than VND1,000 in fees. Companies are waiting for a tax reduction for gasoline and oil to support production and economic recovery.

Deputy Prime Minister Le Minh Khai said that in the near future the situation would remain unpredictable and the pressure from increasing prices on the price index and inflation would be very large.

He directed MoF to calculate carefully. If there is room, the MoF should propose to further reduce VAT and special consumption taxes on gasoline, avoiding a large impact on the consumer price index (CPI).

The MoF also said that it had proposed reducing the most favoured nation (MFN) tariff for unleaded petrol from the current rate of 20 per cent to 10 per cent, instead of 12 per cent as the initial proposal, to bring prices down.

For oil products, the MFN tariff of 7 per cent at present is in accordance with international commitments.

According to the MoF, petroleum is a strategic and essential commodity that is vital to production, business activities and people's social life. The high petrol price and the shortage of petroleum supply at present have put great pressure on the production and business costs of enterprises and people's spending.

Petroleum supply disruption can also delay production and the business activities of enterprises.

The ministry said that, as almost no leaded motor gasoline was imported at the moment, they propose the MFN tariff for the product would remain unchanged.

Experts said that the tax reduction proposal would be the only option to lower domestic fuel prices and it should not wait for approval at the National Assembly session in October. The National Assembly should provide a solution for this special situation.

Nguyen Ngoc Tu, a lecturer at Hanoi University of Business and Technology, said according to the regulations, this proposal would be submitted to the National Assembly in October and only in November could the reduction of taxes could be implemented.

At that time, the prices of many goods and services might increase further, as gasoline prices would continue to reach new heights. Purchasing power would be exhausted and economic recovery would face many obstacles, he said. — VNS