Battered by the fourth wave of Covid-19, Vietnam’s economy is now facing an uphill battle to cope with rising prices of fuels and input materials.
Sharing the burden
Fuel prices have reached their record highs after being hiked 13 times since early this year. It’s high time the Government comes up with special policies to save the economy before it’s too late.
If the Government pays attention to the reduction of taxes on fuels only due to fears of State budget losses, the economy may stagnate. Once enterprises scale down their operations or incur losses, the lost tax revenue will be even higher.
According to Tran Dinh Thien, former head of the Vietnam Institute of Economics, amid the recovery of enterprises and the economy, the sharp increase in the prices of input materials, given the rising fuel prices, is definitely a heavy burden. The Government needs to pay more attention to this issue and share the benefits of the rising fuel prices with the economy.
“The fuel price spike is not the Government’s fault. It is out of its control but has created a great impact on and posed a high risk to the global economy, not just in Vietnam,” Thien added.
However, as Vietnamese enterprises remain weak, local residents have yet to become rich, and the Government wants the economy to recover, it must share the difficulties by amending policies.
In special and extraordinary cases, special policies should be worked out rather than enhancing the State budget. The fuel price hike has also benefitted the budget, and the Government should use these benefits to support enterprises and residents who have been facing difficulties.
The National Assembly (NA) has approved a proposal to cut the environmental protection tax on fuels, but the reduction is small and is not an ideal solution.
Meanwhile, the excise and import taxes should be cut to lower the fuel prices. The Government should weigh this solution and make a proposal to the NA.
Vietnam needs to create opportunities for enterprises to stay firm and develop and help residents overcome difficulties and enhance their confidence. Therefore, cutting fuel taxes is what needs to be done now.
Many countries consider the fuel price spike a special situation, so they have spent a large part of their budgets cutting fuel prices. Fuel price hikes are extraordinary and have caused a negative impact, even inflation and economic recession, so these countries have applied strong measures, such as reducing taxes. Meanwhile, Vietnam has yet to employ the solution.
The Vietnamese economy and enterprises are weaker, and Vietnamese consumers are poorer, so the Government must immediately come up with positive solutions. If Vietnam wants to recover from the pandemic and take advantage of this opportunity to develop, it must make breakthroughs.
For the benefit of the economy, the Government and the NA should reach a consensus and work out stronger and more positive solutions to deal with the rising fuel prices.
Nguyen Quoc Ky, chairman of Vietravel Holdings, said in the aviation sector, fuel costs account for a large proportion of the total cost. Due to the continuous increase in fuel prices, the airline has found it hard to generate profits despite a busy flight schedule.
“In addition to aviation, we offer travel services. The gasoline price amounting to nearly VND33,000 per liter has increased the prices of multiple services, such as road and waterway transport and catering, resulting in the higher prices of all-in tours. Despite efforts to cut costs, the prices of all-in tours have risen by 10-15%,” Ky noted.
Other firms disclosed the same information as the market has just recovered, so no company will dare to revise the prices of their services.
If the price hike remains, higher price levels than those seen early this year will be established, negatively impacting tourism recovery. Despite the higher number of tourists, enterprises in the sector will find it hard to recover.
Ky said, “At our company, the number of customers has soared but the recovery is slow due to the low profit, making it hard to compensate for losses caused by the Covid-19 pandemic. Earlier, we had calculated it would take three to five years to recover after the pandemic, but the rising prices will lead to the recovery process being protracted.”
To ease the price hike, policymakers should decide if the burden of rising prices should be placed on consumers. The reduction of some taxes on fuels has sent the State budget revenue down by trillions of Vietnamese dong. However, further proposals on tax reductions should be made to reduce fuel prices, Ky suggested.
If fuel prices continue rising, resulting in the higher prices of other goods and creating new price levels, it will be hard to return to the previous price levels. At the time, not only tourism and aviation but the entire economy will be affected, and the minimum regional wage hike or some other support policies will fail to support residents’ or enterprises’ recovery after the pandemic.
Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association, noted that the Russia-Ukraine military conflict has yet to end, while the fuel prices and marine transport costs have risen continuously, sending production costs up. The prices of materials have also surged by nearly 30%. These are challenges facing Vietnam’s textile and garment sector.
In the second half of this year, the global market may witness unprecedented developments. Meanwhile, the negative impact of the Covid-19 pandemic remains, such as supply chain and logistics service disruptions, which have increased transport costs and caused a shortage of shipping containers.
Despite having enough orders until the end of the third quarter of the year, customers may reduce or suddenly cancel their orders if the consumption is slow or importers’ inventories increase.
Furthermore, the costs of materials and fuels have risen, thus increasing the production costs and reducing enterprises’ profits.
Huynh Phuong Trinh, deputy general director of International Mix Joint Venture Company, said the prices of material imports have soared since early this year. As a case in point, cornstarch was priced at VND24,000 per kilogram early this year. The price has risen to VND36,000 per kilogram, while suppliers have quoted the price at VND42,000 for the last quarter of this year.
The price of wheat flour has also increased from US$700 per ton since early this year to over US$950 and may reach US$1,000.
The price hike was attributed to the raw material scarcity and the transport cost hike caused by fuel price hikes. On average, material prices have increased by over 20% compared to early this year.
“In early April, our company raised the selling prices of products but the levels were much lower than the increase in the input material prices,” Trinh said.
Fuel prices must be stabilized by cutting taxes and fees to control rising material prices.
According to Ly Kim Chi, chairwoman of the HCMC Food and Foodstuff Association, food and foodstuff enterprises in HCMC are struggling with the soaring prices of material imports, which have risen by 20-30%, and even 40%.
Therefore, customers from selective markets, such as the United States and Europe, have a high demand for food products, such as instant noodles and beverages, but local enterprises will not dare to receive these orders due to the fluctuation in input material prices. With large orders, enterprises will find it hard to adjust selling prices. Moreover, enterprises are facing a shortage of capital to reserve materials.
Food and foodstuff are necessities. The increase in these products will affect consumers’ spending and inflation. Therefore, despite high input material prices, many enterprises have tried to maintain the prices of their products.
Pham Thai Binh, general director of Trung An Hi-Tech Farming JSC, said the rising prices of fuels, fertilizers and plant protection drugs had sent the rice production costs up, while the price of rice does not increase, corresponding to the input costs, affecting farmers’ incomes and enterprises’ exports.
The proposal of reducing fuel taxes is reasonable as fuel prices have increased by nearly VND10,000 per liter from early this year.
Tran Nguyen Hoang Phu, deputy general director of Soc Trang Seafood JSC, shared that domestic transport costs had been revised due to the fuel price hike.
As for production activities, costs have also increased. For example, farmers in some areas have used oil-fueled power generators to create oxygen for shrimp farms. The proportion of the oil cost has doubled to 2-3% of the total cost.
Ta Long Hy, chairman of the HCMC Taxi Association, said transport firms were weighing revising their service prices. Many enterprises had sold their vehicles, while many drivers had quit their jobs, so these enterprises had recovered only by 30-40%.
Fuel costs earlier accounted for 25-30% of enterprises’ operation costs, but the proportion has increased to 30-40%, while taxi fares have yet to be adjusted.
Besides environmental protection tax, the competent agencies should consider if the excise tax on fuels should be maintained or not, as fuels have directly affected local residents’ lives and production activities. The elimination of this tax in the current context is necessary to facilitate enterprises’ recovery.