Raising the EPT from 2019 not to affect CPI 2018

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If the tax increase greatly impact on price increase, it is proposed to use the price stabilization fund at 50%. Photo: H.Van

At the Resolution on EPT which has just been adopted by the Standing Committee of the National Assembly, the EPT rate will be revised from VND 3,000/ liter to VND 4,000 /liter on petrol, from VND 1,500 / liter to VND 2,000 / liter on diesel oil, from VND900 / liter to VND2,000 / liter on mazut and lubricant oils, and from VND300 / liter to VND1,000 / liter on paraffin.

The application of the new tax rates shall start from January 1st, 2019, so as not to affect the CPI in 2018.

According to the analysis of the Drafting agency under the Ministry of Finance, petroleum is only one of the 11 commodity groups (with about 654 items), which is listed in to the basket of goods to measure CPI and has no big impact because these items only account for about 4% of the price level compared to other essential items such as food or housing and construction materials.

At the same time, petroleum is also one of the items that can use the stabilization solution (Petroleum Price Stabilization Fund) to limit the impact on the price level in necessary periods. Recently, in order to contribute to controlling the sudden increase of domestic petroleum prices due to the continuous increase in world oil prices, the petroleum price stabilisation fund has been used.

According to a recent assessment by this Ministry, the CPI in the third quarter of 2018 increased by 0.72% against the previous quarter and by 4.14% year-on-year. Average CPI for the first 9 months of 2018 rose 3.57% over the same period last year. In general, price management in the first 9 months is still under the Government’s control, the management of the last three months 2018 is still for surplus. The average CPI in 2018 is forecasted to be in the range of 3.75% -3.95%, thus ensuring an inflation control target for 2018 for below 4% set by the National Assembly. This is basis for further reviewing and revision of EPT 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 in all months of the year. Therefore, the revision of EPT applied in January 2019 will only affect the average CPI of 2019 at a low level, and will not significantly affect the price management, control and inflation control in accordance with the objectives of 2019.

At present, the Government is reporting to the National Assembly on CPI for 2019 which is about 4-5%. According to the assessment, if the EPT rate is revised up from January 1st, 2019, it will not significantly affect the CPI in 2019, only at the level of 0.07-0.09%.

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Thus, the upward revision of EPT from January 1st, 2019 is to ensure the feasibility (prioritize the upward revision of EPT and continue regulating the other items in line with the general CPI developments).

In the case where the increase in EPT has a great impact on price increases, it is recommended to use the price stabilization fund at 50%, and to revise up price to 50% in the first quarter of 2019.