Fuel tax to up Vietnam inflation by 1.6 percent

By Dat Nguyen October 11, 2018 | 12:58 am PT

An employee pumps petrol into a motorbike in Sapa, northern Vietnam. Photo by Shutterstock/charnpui

Vietnam’s inflation will rise when the new environmental tax on fuel comes into effect next year, a report says.

The report, prepared by the Vietnam Institute for Economic and Policy Research (VEPR), said raising the environmental tax on fuel by VND1,000 (4.3 cents) per liter will increase inflation by 1.6 percentage points next year.

“We are concerned that next year’s inflation will surpass the 4 percent target that the government has set in recent years,” said Nguyen Duc Thanh, VEPR head.

Instead of setting targets without careful calculations, the government needs to have strong solutions keep inflation from rising, he added.

The figure VEPR has come up with is much higher than that of the National Assembly Standing Committee, which estimated the rise would only be 0.07-0.09 percentage points.

On the National Assembly’s estimation, Pham The Anh, head of macroeconomics at the Hanoi-based National Economics University, said that it was “too low and imprecise.”

Environmental tax on fuel will affect material costs, which will increase production costs and raise product prices, Anh noted.

“The new tax will affect consumption of households and businesses,” he added.

Speaking to VnExpress earlier, Ngo Tri Long, former head of the Ministry of Finance's Price and Market Research Institute, said that all industries would be affected by the higher fuel tax.

Vietnam is a middle-income country with low competing capabilities, therefore the new tax is unreasonable, Long said

Last month, the National Assembly’s Standing Committee decided to increase environmental tax on fuel starting January next year by up to VND1,000 per liter.

Although the plan met strong public opposition during its draft phase, authorities defended it, saying it would bring VND15.7 trillion ($676.8 million) each year to the government’s coffers, and help deal with serious environmental issues.

Official data shows that spending on environmental problems has been higher than environmental tax collection. From 2012 to 2017, the spending was VND158 trillion ($6.79 billion), while collection was VND150.8 trillion ($6.48 billion).

Vietnam’s inflation in the first nine months this year was 3.57 percent.