The National Assembly Standing Committee (NASC) has turned down a Ministry of Finance (MoF) proposal to almost triple the environmental protection tax on oil and gas consumption, citing potential harm to consumers.
“Increased State revenue from the tax hike would be used for socioeconomic tasks, including environmental protection,” Minister of Finance Dinh Tien Dung said. “The increase in the petrol tax to VND8,000 ($0.35) per liter would also help improve people’s awareness about environmental protection and at the same time prevent petrol smuggling.”
In addition, the Law on Environmental Protection Tax has only focused on petrol, which accounts for 93 per cent of total collections. The ministry also wanted to raise the tax on plastic bags to VND40,000-80,000 ($1.76-3.52) per kilogram from the current VND30,000-50,000 ($1.32-2.2).
But his explanation received objections from the legislature. NA Chairwoman Nguyen Thi Kim Ngan said the government’s current policy was to limit increases in taxes and fees at this time, to ease difficulties facing businesses. NA Vice Chairman Phung Quoc Hien said the explanation was not convincing.
Although Vietnam’s tax rate is low relative to other countries, international comparisons were inappropriate due to the lower incomes in Vietnam. Petrol spending, the NA Vice Chairman said, already accounts for a relatively high proportion of incomes.
In its latest country report on Vietnam, the International Monetary Fund said the tax on gasoline in Vietnam should be increased by $0.46 per liter and $0.43 for diesel. “The government’s proposal to double the environmental protection tax on petroleum consumption from an average of $0.11-$0.24 per liter is a positive development, but its impact on the vulnerable in the population must be carefully considered,” the report stated.
Most importantly, “heightened transparency and communications about the use of tax revenue towards improving the environment could help make the reform better accepted by the public,” it added.
In May 2015, Vietnam tripled its environmental protection tax rate to make up for revenue lost from the country’s accession to the ASEAN Trade in Goods Agreement (ATIGA), which required it lower import duties on oil products.
Vietnam collected VND42.4 trillion ($1.87 billion) from the environmental protection tax in 2016, up nearly 57 per cent against 2015. Spending on environmental protection reached just VND12.3 trillion ($541.3 million), however, accounting for 29 per cent of the collected tax.