VCCI: Higher environment tax on fuels to hit business hard

The ministry proposed an environment tax of VND4,000-8,000 per liter of gasoline (compared to the current VND1,000-4,000), VND3,000-6,000 per liter of jet fuel, VND1,500-4,000 per liter of diesel oil, VND300-2,000 per liter of kerosene, VND900-4,000 per kilogram of heavy fuel oil, and VND900-4,000 per kilogram of lubricant.

These are just tentative tax ranges, the ministry said, so specific tax rates would have to be decided by the National Assembly. The ministry argued wider tax ranges would allow for more room to maneuver in line with socio-economic development policy for a particular period of time.

However, VCCI said the ministry’s argument did not make sense since the environment tax is not much relevant to socio-economic development policy, so it should not be adjusted based on such policy. Therefore, VCCI asked the ministry to remove that argument from its tax change proposal.

VCCI pointed the proposed environment tax hike would hurt enterprises and the economy. It said fuels are an important input in the transport, agriculture and seafood sectors, so if the environment tax is raised, it would deal a blow to them.

VCCI quoted the pricing management agency at the ministry as saying that fuels make up 25-45% of costs of vehicles and 39.5% of costs of airlines. Fuels account for 33-59% of production cost in the seafood sector and transport makes up 35-40% of farming cost. 

These sectors employ large numbers of disadvantaged people and are undergoing modernization. Higher fuel bills would cause a big dent to their mechanization process, VCCI said.  

Input costs and financial obligations of enterprises are on the rise as the world oil price has inched up and the road toll burden has become heavier for transport firms given the mushrooming of build-operate-transfer road projects. Social insurance payments for employees tend to go up, piling financial pressure on employers.

VCCI called for a comprehensive and objective assessment of the impact of an environment tax increase for fuels on the economy and social welfare.

The Ministry of Finance reported environment tax revenue accounted for 4.1% of total budget collections last year and 99% of it came from fuels. VCCI calculated the percentage would rise to 9.8% if import, special consumption and value-added taxes were included.

VCCI said the proportion would be 15% if the highest rates in the proposed environment tax ranges were applied and import tariffs were reduced and lifted in line with Vietnam’s commitments to trade agreements.

The proposed environment tax ranges which are believed to shore up budget collections would do more harm than good in the long term, VCCI stressed.