Vietnam Proposes Higher Environmental Protection Taxes – Vinh Le

Vinh LeManager, Dezan Shira & Associates

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Vietnam’s Ministry of Finance is planning to increase the environmental protection taxes on oil and petroleum products to the ceiling level of 4,000 VND (17 US cents) from the current 3,000 VND (13 US cents). The government proposes to bring it into effect from July 1, 2018.

Diesel oil will see an increase by 500 VND per liter to 2,000 VND in environmental protection taxes, while taxes on other oil products will increase by 1,100 VND per liter to 2,000 VND. Along with petroleum products, environmental taxes on plastic bags will also increase from 30,000 VND to 50,000 VND per kilo as per the proposal.

In January 2018, oil and petroleum product imports reached 900,000 tonnes, growing by 3.5 percent. Import value stood at US$ 552 million, an increase of 10.8 percent. The government had introduced a similar hike in 2014 to balance state revenues, increasing taxes from 1,000 VND to 3,000 VND.

Why the increase in taxes

In the last few years, import taxes on oil and petroleum products have reduced considerably due to Vietnam’s tariff commitments leading to a reduction in state revenues. Current import taxes on petroleum products and oil products will be reduced from 20 percent and seven percent to 10 percent and zero percent respectively.

Importers have also been shifting to countries with preferential tariffs to maximize earnings and reduce taxes. This has led the retail prices of oil and petroleum products in Vietnam to fall below the prices of their neighboring countries. According to the Global Petrol Prices ranking for 5th March 2018, Vietnam ranked 47th amongst 167 countries in petrol retail selling price.

Effect of tax hikes

The increase in environmental taxes would have an effect on the transport industry and ultimately the selling price of a number of products. However, the government hopes that the hike can help increase the use of environmentally friendly products, such as E5 bio-fuel. As of now, the E5 bio-fuel accounts for only nine percent of the total petroleum consumption in the market.

As for the State’s tax collection, the Ministry of Finance estimates that the hike will lead to an increase in collected tax by 15.684 trillion VND (US$690 million) per year. The total revenue of environmental protection tax grew from 11.1 trillion VND (US$ 492 million) in 2012 to 42.4 trillion VND (US$ 1.8 billion) in 2016.

However, industry experts are skeptical about the disbursement of the tax hikes for environmental protection and believe that the hike is being introduced to balance the reduction in import taxes. The amount spent on environmental protection grew from 9 trillion VND (US$ 399.3 million) in 2012 to only about 12.2 trillion VND (US$ 541.3 million) in 2016.

With the proper allocation of the tax revenues, this transition towards environmentally friendly products can help Vietnam reduce emissions and align itself further with international norms on environmental protection.

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