Vietnam plans to increase environment tax on petroleum products

By Thanh Thanh Lan February 23, 2018 | 12:35 am PT

An employee pumps gasoline into a car at a gas station in Hanoi. Photo by Reuters/Kham

The tax hike would add $690 million to the state coffers if approved.

Vietnam is looking to increase an environmental protection duty imposed on fuel products from the current VND3,000 (13 U.S. cents) to VND4,000 per liter, according to a proposal of the Ministry of Finance.

If being approved, the increase will be applied from July 1.

Explaining the hike, the ministry said it would add VND15.7 trillion ($690 million) to the state budget, offsetting a shortfall caused by a fuel import tax cut.

Under a free trade agreement between the Association of Southeast Asian Nations (ASEAN) and South Korea, which came into effect in early 2016, the import tariff on gasoline imported from South Korea to Vietnam has fallen from 20 percent to 10 percent.

As a result, most Vietnamese traders who had improted gasoline from ASEAN countries switched to South Korea because the import tariff on gasoline from the former still stands at 20 percent.

Meanwhile, retail pump prices in Vietnam are lower than in many neighboring countries, including ASEAN nations, according to the Finance Ministry.

The Ministry of Finance has also proposed an increase to the environmental protection duty imposed on oil products by VND500-1,000 per liter.

Fuel is a major source of revenue for Vietnam. Import tariffs from fuel, which are paid by local businesses, now account for around 7 percent of the state's income, according to the petroleum association.

With import tariffs set to be abolished as part of free trade deals, a higher tax will help sustain that income, said experts.

But some industry insiders are concerned that the hike will not be welcomed.

Nguyen Tien Thoa, former director of the finance ministry's price management department, said tax hikes will draw “reactions” from consumers and might affect consumption.

Vietnam gained VND42.4 trillion in revenue from environmental protection taxes in 2016, jumping nearly 57 percent from 2015.

During the same period, spending on environmental protection reached just VND12.3 trillion, accounting for 29 percent of the tax revenue.