Adjusting the tax on petrol and oil: The State needs the sharing of businesses and people

The Price Stabilization Fund has been used to stabilize petrol prices over the past years. Picture: Hong Van.

Increase 0.07-0.09% CPI

The first is the impact on the Consumer Price Index (CPI). As explained by the Ministry of Finance, petrol is just one of the 11 commodity groups (with about 654 items) being put into the CPI basket of goods, only about 4% of the price level compared to other essential commodities such as food, (36.12%) or housing and construction materials (weight 15.73%). At the same time, gasoline is also a commodity that can use stabilization measures to limit the impact on the price level in times of need. In the past time, in order to help curb the increase of domestic petroleum prices, the use of the Price Stabilization Fund has been used to stabilize petrol prices.

According to the Ministry of Finance, CPI in the first eight months of 2018 increased by 2.59% compared to December 2017, average of the first 8 months of 2018 increased 3.52% over the same period. In general, the price control in the first eight months of the year is under the control of the Government, the management in the last four months of 2018 still remains. The average CPI in 2018 is forecasted to be in the range of 3.75% -3.95%, thus ensuring the target of controlling inflation in 2018 below 4% set by the National Assembly, which will be the basis for further review and adjustment of environmental protection tax in the coming time.

According to the average CPI calculation method, the performance of the inflation control target for the whole of 2019 will be affected by average CPI of all months of the year. Therefore, the adjustment of environmental protection tax applied in January 2019 will only affect the average CPI of 2019 at a low level and will not significantly affect the management, control of prices and inflation control in accordance with the whole year objectives in 2019.

At present, the Government is reporting to the National Assembly on CPI in 2019 as about 4-5%. It is estimated that the increase of the environmental protection tax rate from 1 January 2019 will not affect the CPI in 2019 by much, only at 0.07-0.09%.

Therefore, the increase of environmental protection tax from 1 January 2019 is to ensure feasibility. In cases where the increase of environmental protection tax has a great impact on the price increase, the management agency will propose to use 50% from Price Stabilization Fund and increase 50% in the first quarter of 2019.

Commenting on this issue at its 25th meeting (July 2018), National Assembly Chairman Nguyen Thi Kim Ngan, said that if inflation can be raised a little and that generates revenue of nearly 16 trillion VND, it is necessary. Moreover, the NA Chairman thinks that "thinking for tax increases is price increase" is not correct. Evidence for this argument, Chairman Nguyen Thi Kim Ngan stated: Raising taxes, but if the petroleum business have solutions to save money in other stages (transport, preservation...), gasoline prices are not likely to increase because these other sectors would not cost so much. National Assembly Chairman stressed the need for financial institutions, tax and customs to strengthen inspection and supervision of business results of petroleum businesses to see how to reduce costs of production and business, and not be adjusted to increase gasoline prices mechanically as today.

"State cannot protect forever"

In terms of assessing the impact of adjusting the environmental protection tax rate to some manufacturing sectors, the Government has also analyzed quite well. Specifically: Impact on freight rates is about 0.83% in 3 months after rising commodity prices. However, the rate of increase in freight depends on the size of the transport business unit, type of vehicle... On the other hand, according to the current Law on the adjustment of increase or decrease in fixed-rate passenger transport and taxi fares, these are regulated by market supply and demand.

Commenting on this matter, Assoc. Prof. Dr. Le Xuan Truong - Head of Tax, Customs, Finance Institute said that because petrol and oil are essential commodities, the demand is less elastic than the price. With the level of price increases as calculated by the Government, there is no significant impact on reducing demand for this commodity. Basically, the increase of environmental protection tax will increase the petrol price. As such, the most affected enterprises are transportation companies. Transportation costs will increase pressure to increase prices for freight and to passengers, but the increase is not too high.

Sharing with this perspective, economic expert, Associate Professor Dr. Dinh Trong Thinh commented: The increase in petrol prices will certainly affect the production and business of enterprises when using gasoline. Enterprises have to accept and must understand, that for many years our gasoline prices have been much lower than other countries in the region as the item is still receiving the protection of the state. However, on this point, we have to accept the "drop" price in accordance with the general trend of the market economy; the state cannot be forever protected. Enterprises and people need to share with the state in the context of difficult budget.

In fact, there is another "evidence" leading to the assessment of the impact of raising petrol and oil tax is not large. That is, according to the ranking of the Global Petrol Prices website on 10 September, 2018, retail gasoline prices in Vietnam ranked 49th from low to high among 165 countries (lower than 116 countries). Countries such as Brazil, China, India, Canada and Norway have a higher gasoline retail price than Vietnam, despite their large oil reserves and commercial oil production. The retail price of gasoline of Vietnam (as of 10 September, 2018) is low compared to other countries sharing borders in ASEAN and Asia such as Laos 5,318 VND/liter, lower than Cambodia 1,773 VND, lower than China 1,499 VND/liter, lower than Thailand 1,145 VND/liter, lower than Singapore 18,219 VND/liter, lower than the Philippines 4,177 VND / liter, lower than Hong Kong 30,383 VND/ liter.

According to figures provided by the Vietnam National Oil and Gas Group (PetroVietnam), as of September 10, 2018, the retail price of diesel oil in Vietnam was lower than Laos 6,092 VND / l liter, lower than Cambodia 4.414 VND, lower than China 3,934 / liter, lower than that of Singapore by 12,401 VND / liter, lower than Philippines 3,274 VND/ liter, lower than Thailand 6,459 VND/ liter, lower than Hong Kong by 24,656 VND / liter.

Not only that, the tax rate on Vietnam's petrol base (on 10 September, 2018) is about 35.6% lower than many countries. South Korea is about 63.18%, Cambodia is about 49%, Laos is about 56.5%, the Philippines is 49.5%, China is about 52%, Singapore is about 67% and Hong Kong about 76%.

Thus, with the plan to raise the environmental protection tax rate to 4,000 VND per liter (up 1,000 VND per liter), the tax rate on Vietnam's gasoline price is about 39%, which is still lower than the gasoline tax rate of the above countries.