Petrol suffers too many taxes: experts

At last week's launch ceremony for research on “Features of Vietnam’s petroleum market and impact on household welfare” conducted by the Vietnam Alliance for Tax Justice and Vietnam Centre for Economic and Strategic Studies (VESS), experts said that all sectors in the economy were greatly affected by petrol prices.

According to the research by VESS, taxation on petroleum directly affects the living and spending of households. Currently, each litre of petrol and oil is subject to taxes and fees such as VAT at 10 per cent, import tax 10 per cent, special consumption tax 10 per cent) and environmental protection tax at 8.3-16.7 US cents.

In two months, prices increased six times continuously, exceeding $1.33 per litre, and surpassing the historical peak in July 2014 of $1.10.

In fact, petroleum tax is currently contributing an important part of the state budget revenue. The tax reduction will lead to a significant loss, affecting other economic activities.

"The detailed and strict regulations in Decree No.95/2021/ND-CP and Decree No.83/2014/ND-CP may point out the interest groups that want to maintain their market position," said Nguyen Duc Thanh, VESS founding president.

Regarding the current base price calculation method, VESS' report also sees many weaknesses that make the base petrol price not reflect the actual petrol price and not keep up with the international market's changes in petrol prices.

For example, an excise tax aims to reduce petrol consumption and contribute to reducing greenhouse gas emissions, so an environmental protection tax is not necessary, it claims.

"The current method of calculating taxes entirely based on the ratio (per cent) can drop the budget revenue if world prices go down sharply, or amplify domestic prices if world prices go up sharply and suddenly," Thanh said. "The current tax policy may no longer be suitable to the current volatile petrol price context.”

Moreover, the weighted average import tax calculation method is indirectly reducing the diversification of the petroleum import market because importers often buy petroleum from countries that have signed trade agreements and a lower tax rate than the average import tax rate, such as South Korea, Singapore, and Malaysia, Thanh pointed out.

Therefore, some experts say that the government and relevant agencies need to correctly and fully calculate the base petrol price, ensuring a harmonious balance of interests of all parties.

VESS experts recommend changing the application of both the environmental protection and special consumption tax in the same direction as other countries, which is to combine the two types into one, as well as using an amount instead of a percentage ratio. For example, excise tax could be VND2,000 (8.3 US cents) per litre.

Nguyen Thi Bich Huong, chairwoman of the petroleum branch under the Vietnam Association of Small- and- Medium- sized Enterprises, said current policies on petroleum business had many shortcomings.

Since 2022, the government has been asked to amend Decree No.83/2014/ND-CP and Decree No.95/2021/ND-CP, but so far, this have not been approved, Huong said. Enterprises want to quickly amend the decrees to overcome the inadequacies and make the petroleum market more stable.

"We should not compare petroleum prices of Vietnam and other countries because the government has to consider many factors to stabilise production and business activities," Huong said. “When Vietnam's petrol prices are high, there is smuggling of petrol from abroad through unofficial channels in the West. When Vietnam's petrol prices are low, there is smuggling of domestic petrol overseas."

For example, the transport sector suffers the most if petrol increases. The rise of transport costs will lead to a rise in other goods' prices, causing numerous challenges to businesses and consumers.

To increase competition in the petroleum trading market, VESS researchers have proposed to remove the regulation on minimum distance (of the Ministry of Construction) to increase competition for the market, and amend related policies such as regulations on market operation, discounting, and allowing petroleum retailers to import from various suppliers.

The Ministry of Industry and Trade (MoIT) has suggested seven provisions to secure the petroleum supply, including an increase in the national petroleum reserve from nine to fifteen days of net imports.

The petitions concern the alteration of petroleum business restrictions in decrees No.83/2014/ND-CP and No.95/2021/NQ-CP, resulting in losses for retail establishments.

Deputy Prime Minister Tran Hong Ha has said the $11.5 billion investment capital needed to establish a petroleum reserve infrastructure system by 2030 will see the majority of the funding come from outside the federal budget.