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Thursday,  Jun 29,2017,15:57 (GMT+7)

The tax dilemma

Son Nguyen
Friday,  May 19,2017,22:18 (GMT+7)
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The tax dilemma

Son Nguyen

A tentative scheme to impose a high environment tax on fuels is put forth, despite strong objections in the recent past whenever the issue was let fly. This time again, protests from experts and economists are even more vigorous, when the so-called environment tax policy is designed to not protect the environment but to increase State budget revenue, evident in a seminar in Hanoi this week.

The tough question emerges this time: Which is more important between business development that promises long-term and sustainable streams of revenues for the State budget, and quick measures for short-term tax gains? It seems, for State agencies, that the short-term benefit outweighs the long-term one.

The aim was expressly and bluntly declared at a seminar titled “Fuel markets and institutional issues” organized by the Vietnam Petroleum Association (Vinpa) in Hanoi this Tuesday. Phan The Rue, chairman of the association, asserted at the seminar that “it is necessary to raise fuel tax to cover a State budget deficit as import tariffs are going down,” according to Tuoi Tre newspaper.

In fact, the Ministry of Finance has several times indicated its intention to raise the environment tax for fuels from the current VND4,000 a liter to VND8,000. This goal by the ministry was strongly advocated by Vinpa at the aforesaid seminar.

“It is necessary to ensure that the total tax sum accounts for half the retail fuel price. As the import tariff goes down to zero, other taxes must be raised to offset the shortfall; this is the people’s responsibility to the country,” Rue, former deputy minister of trade, is quoted by Tuoi Tre.

Rue explains in Nguoi Lao Dong newspaper that for every VND1,000 increase in the fuel tax, the State budget could get an extra trillions of Vietnam dong, so if the tax is raised to the ceiling of VND8,000 per liter, extra revenue would be colossal.

This stance is also confirmed by the Ministry of Industry and Trade.

Vo Van Quyen, head of the Domestic Market Department under the ministry, told the seminar that “the tax on fuels is being reconsidered in accordance with the tax reduction roadmap…, and the environment tax on fuels is suggested at an upper limit of VND8,000 a liter.”

Last month, the Ministry of Finance also affirmed at a news briefing that “the draft Law on Environmental Protection will be submitted to the National Assembly in October, which also allows for the maximum tax on fuels to double (to VND8,000 a liter),” according to Thanh Nien newspaper.

Such a viewpoint has faced stiff resistance.

Bui Danh Lien, chairman of the Hanoi Transport Association, says on Bao Dat Viet news site that a shortfall in the State budget requires other solutions than hiking the environment tax, which is not used to benefit the environment. “There are many solutions to the budget shortfall, the most important one of them being to cut public spending… Raising the environment tax on fuels is absurd,” Lien is quoted as saying.

Truong Dinh Tuyen, former Minister of Trade, disapproves of the tax hike on fuels. While such a tax hike can apply as a temporary measure, it is unacceptable in the long run to raise the environment tax on fuels to offset the falling import tax revenue, he says. “What is more important is to lower taxes to help enterprises reduce input costs,” he is quoted by Tuoi Tre.

Fuels are an essential constituent in the input cost of most enterprises, say experts.

Pham Tat Thang, a senior specialist with the Ministry of Industry and Trade, says that any plan to raise tax on fuels must take into account multiple impacts on input costs of enterprises and the market, according to VOV.vn, a news website of the Voice of Vietnam radio station.

Echoing the point, Nguyen Tien Thoa, former head of the Ministry of Finance’s Pricing Department, reasons in Nguoi Lao Dong that it is unwise to impose a high tax on inputs. “(We) should lessen the tax burden on inputs to create conditions for business development, which results in lower-cost products for consumption. Higher tax should be collected from consumption,” says Thoa, adding that he disagrees with the plan to impose a higher environment tax on fuels. The pricing expert advises relevant State agencies to attend more to taxing the output rather than the input.

Meanwhile, Truong Dinh Tuyen asserts on VOV.vn that lowering the fuel tax will help enterprises cut costs, and subsequently the State will be able to gain higher tax revenue from more efficient enterprises and the market.

Le Dang Doanh, a veteran economist, shares the view not to raise the fuel tax. He says that the environment tax of VND8,000 per liter is too heavy for both people and enterprises, according to Tien Phong.

“Raising the (environment) tax to VND8,000 a liter will spike the transport cost, which in turn pushes up prices of many commodities, causing problems for the economy in the current context,” Doanh is quoted in the newspaper. 

Bui Danh Lien of the Hanoi Transport Association refers to a recent news report that the cost of transporting a container from Hanoi to Haiphong is three times higher than that from South Korea or China to Vietnam. The high cost is due to both formal and informal costs borne by enterprises, Lien says in Bao Dat Viet, hinting at the fuel cost as a factor.

The dilemma still stays there for the taxman to address: either to look forwards to long-term sustainable sources of revenue or to focus on quick bucks. “We should ‘eat’ less in the first tier so that business as the second tier can grow, and we can collect more from consumption as the third tier. This is also the sustainable way of tax collection, nurturing the future sources of income that the finance sector often mentions,” says pricing expert Nguyen Tien Thoa in Tien Phong.

The Saigon Times Daily

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