Vietnam’s sole oil refinery asks for tax break

Oil products from Dung Quat refinery are levied with taxes at the same rate as products imported from other countries.

Higher taxes compared to imports from ASEAN and other countries have driven the price of products from Dung Quat refinery 10 percent higher, according to Nguyen Hoai Giang, chairman of the Binh Son Refining and Petrochemical Company (BSR), the operator of the refinery.

“Every 159-liter barrel of Dung Quat’s gasoline on the domestic market is $4 to $5 higher than imported gasoline from other countries in the (ASEAN) region,” said Giang.

“In the near future, taxes levied on Japan’s gasoline are going to be lowered to 10 percent, so how can we compete?”

Amid falling oil prices on the global market, some domestic oil wholesalers have reduced their purchasing volume from Dung Quat and signed short-term contracts for two to three months instead.

Petrolimex Corporation, Vietnam’s top oil distributor and Dung Quat's biggest client, signed a contract this year to buy 80,000 cubic meters of diesel per month rather than 120,000 cubic meters, BSR said.

Tax levels imposed on Dung Quat’s oil products are higher than the rates on imports from ASEAN members and South Korea.

Source: Table of tariffs under ASEAN– Korea Free Trade Agreement (AKFTA) and ASEAN Trade in Goods Agreement (ATIGA)

Special incentives

Dung Quat refinery has asked for the tax reduction despite a wide range of special incentives the company receives.

The Ministry of Finance allowed BSR to retain three percent of import tax for petrochemical products, five percent for Liquefied Petroleum Gas (LPG) and seven percent for oil products in November, 2009.

In case import taxes are lower than those levels, PetroVietnam is obliged to grant the above sums to Dung Quat from 2012 to 2018.

Dung Quat refinery, at the same time, has been given other preferential treatment, as specified in Vietnam’s Law on High Technology 2008. Under the law it was exempt from income tax for the 2010-2014 period and will pay only a five percent income tax from 2015 to 2023.

The company is also exempt from land use tax over a 15-year period from 2010.

Special incentives, however, do not always guarantee profits.

The refinery would have suffered a loss of VND27.6 trillion ($1.2 billion) from 2010 to the end of 2014 if it had not been for three to seven percent tax returns, Petrolimex said in a report sent to the Prime Minister in mid-2015.

Dung Quat refinery was constructed in 2005 and started selling refined oil products from May 30, 2010. Over the 2010 to 2015 period, the refinery produced an average of 36 million tonnes of oil products per year, making up 35 percent of domestic consumption, PetroVietnam said.