Tax exemption and reduction for petroleum need careful review
Assoc. Prof. Dr. Dinh Trong Thinh, Senior Lecturer at Academy of Finance. |
Petroleum prices are rising. What are the reasons for the increase, sir?
Many countries have controlled the Covid-19 pandemic and recovered their economies, so the world petroleum prices have seen increases.
The world crude oil price has risen due to many reasons. First of all, the economic recovery momentum, the reopening of the world market and the high demand for travel resulted in high demand for petroleum consumption.
The second reason was the lack of coal and gas due to the need for electricity production and heating in Europe and the northern hemisphere which raised the accumulation and consumption of crude oil.
Moreover, according to the Vietnam Petroleum Association, Vietnam's petroleum industry has deeply and comprehensively integrated with the world petroleum market, so the fluctuations in world petroleum prices have a strong impact on the retail price of petroleum in the country.
Vietnam has been importing crude oil for refining and processing; about 30% of imported petroleum is for sale in the market. From 2020, the formula of the retail price of petroleum in Vietnam has been structured according to international prices, so the increase in the world prices will raise domestic prices.
Prime Minister Pham Minh Chinh issued Official Dispatch 160/CD-TTg on February 22, 2022, ensuring the supply of petrol and oil for the domestic market. In which, the Ministry of Finance shall assume the prime responsibility for, and coordinate with the Ministry of Industry and Trade and relevant agencies to urgently research and propose a plan to adjust the policy on green tax for petroleum products and report Prime Minister before February 28, 2022 in accordance with Document 486/VPCP-KTTH dated February 21, 2022 of the Government’s Office. The Ministry of Industry and Trade shall assume the prime responsibility for, and coordinate with relevant ministries and agencies to proactively and drastically manage, and balance supply and demand of the petroleum market according to its competence and assigned functions and tasks to provide sufficient petroleum for the domestic market. T.H |
Will rising petrol prices affect inflation?
Petrol price hikes will likely affect the prices of some goods and the price level in the national economy.
The petroleum prices will directly affect individual customers and the transportation industry, and indirectly affect other goods and services because both production and consumption industries need fuel, electricity and gas to operate machinery and equipment.
If the prices of petroleum increase, fuel costs and transportation costs will increase. Therefore, the price hike in petroleum is also an important factor raising inflation in the last months of the year.
However, the price hike in petroleum when the world economy recovers and develops after the pandemic has been forecast by economists.
Facing the increase in petroleum prices and the desire to help people and businesses recover from the Covid-19 pandemic, there have been proposals for tax exemptions and reductions for petroleum, what is your assessment on the proposals?
The proposes should be reviewed carefully. First of all, the Price Stabilization fund should be used only for unexpected and unpredictable price increases. To support people and businesses, the Inter-Ministry of Finance - Industry and Trade has taken flexible adjustment measures to curb the increase in domestic petroleum prices.
Moreover, the actual retail price of petroleum in countries in the ASEAN region and Asia such as the Philippines, Cambodia, Thailand, China, Laos, South Korea, Singapore, Hong Kong (China) are higher than Vietnam even though they have larger oil reserves and larger mining, refining, petrochemical and trading businesses than Vietnam.
Therefore, the lowering of taxes on petroleum will create a price gap with bordering countries and facilitate smuggling and tax evasion by petroleum traders, hampering the government's revenue.
If the lowering in taxes on petroleum discourage businesses from saving energy and petrol because the more petroleum and electricity businesses use, the more support they will get from the Government in reducing gasoline prices, this will make them indiscriminately use fuel, energy, and gasoline and use outdated, low-productivity and fuel-consuming machines and equipment.
In particular, the lowering of taxes on gasoline also creates unfairness for users, deepening the gap between classes in society. Only people with high incomes can use modern vehicles, which consume a lot of petroleum while ordinary and freelance workers use a little fuel. Those who use a lot of fuel will benefit more.
In my opinion, tax on petroleum is the Government’s long-term policy to ensure revenue for the state budget, meet the requirements of environmental protection, reduce emissions, ensure reasonable and economical use of non-renewable resources and regulate income in the economy.
The tax reduction for petroleum will reduce state budget revenues; Government’s spending capabilities for economic recovery and development targets, environmental protection and support for social security and disadvantaged groups in society.
The tax reduction for petroleum to support economic recovery is a short-term policy of the Government. Therefore, the proposals on reducing petroleum taxes need to be carefully studied.
Do you have any recommendations to manage petroleum prices reasonably and reduce pressure on the economy?
It is necessary to regulate petrol and oil prices in order to contribute to achieving the goals of controlling inflation and stabilizing the market and supporting people and businesses.
Management agencies should study to develop reasonable measures or launch financial support packages for businesses to offset high prices of fuel and raw materials.
At the same time, it is necessary to regularly inspect and supervise the supply of petrol and oil to the market by petrol and oil traders and will strictly handle violations to stabilize this market.
Thank you Sir!
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