Proposing reducing ethanol import tax to cut price of biofuel

Bio-fuel consumption increases 31.8%

For consumers to use mineral petrol, the difference level must be at least VND 2,000/ litre. Photo: Internet.

Under current preferential import tariffs, ethanol is classified into two sub-headings. The first sub-heading is undenatured alcohol with alcohol content of 80 percent or more (HS code 2207.10.00) has the MFN tariff rate of 40 percent, equal to the WTO commitment. The import turnover in 2018 reached US$1 million, of which imports from the US accounted for $254.

The second sub-heading for ethyl alcohol and denatured alcohol at all concentrations has the MFN tariff rate of 17 percent for HS code 2207.20.11; 20 percent for HS code 2207.20.19; and 40 percent for the HS code 2207.20.90. This ethyl alcohol is used in industry. The import turnover in 2018 was $31 million, of which imports from the US reached $17 million (accounting for 54 percent), South Korea of $13 million (accounting for 41 percent) and mainly of HS code 2207.20.19.

According to the Ministry of Finance, previously, this sub-heading had the MFN tariff rate of 20 percent but in fact domestic ethanol factories were unable to provide enough ethanol to mix E5 gasoline in 2018 and lackedE10 gasoline since January 1, 2019, the Ministry of Finance has reduced the tax rate from 20 percent to 17 percent.

The special preferential tax rate under the ATIGA and Vietnam-Korea Agreement for the heading 22.07 is 0 percent.

Regarding domestic production, to ensure energy security, protect the environment and raise incomes for farmers, the Government has issued policies for the development of bio-fuels and the promotion of benefits of bio-materials under Decision 177/2007/QĐ-TTg approving the “scheme for bio-materials development by 2015 with a vision to 2025”.

Based on this scheme, Vietnam has six factories producing ethanol for biofuel blending. To now, most factories have stopped operating due to losses and only Tung Lam Co., Ltd’s ethanol factory is operating.

The demand for using ethanol to make E5 RON92 gasoline in Vietnam is about 200,000m3/year. Ethanol production capacity in Vietnam reaches 400,000m3/year. Thus, design capacity of domestic factories can meet domestic demand, however, ethanol needs to be imported as factories have stopped operation.

For consumers to use mineral petrol, the difference level must be at least VND 2,000/ litre. With this difference, the import tax reduction of 5 percent is not significant and it is not enough for consumers to use biofuel.At the end of October 2019, the Ministry of Finance held a meeting with ministries, sectors, associations, the Vietnam National Petroleum Corporation, and the Vietnam Oil and Gas Group. According to ministries, sectors and business associations, the price of biofuel is currently lower than mineral petrol at 1,325 VND/ litre.

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However, depending on the goals, the Ministry of Finance will select the appropriate plan. The Vietnam Oil and Gas Group said the import tax reduction is good for businesses but overall does not have much impact on price reduction and affects biofuel producers.

Based on the opinions of the ministries, sectors and associations and to balance the trade balance with the US, the Ministry of Finance has proposed the Government reduce the tax rate on ethanol for HS code 2207.20.11 from 17 percent to 15 percent and for HS code 2207.20.19 from 20 percent to 15 percent.

This proposal was provided by the drafting agency based on the draft Decree No.125/2017/ND-CP of the Government amending and supplementing a number of articles of Decree No. 122/2016/ND-CP dated September 1, 2016 on the Preferential Import and Export Tariff, the list of goods and the absolute tax, compound tax, and import tax outside the tariff quota.