Cut gasoline taxes to control rising prices, experts advise
The government could lower the special consumption tax on gasoline for a short period to reduce retail prices as some countries have done, said Can Van Luc, chief economist at public lender BIDV.
Thailand, for example, halved the special diesel consumption tax for three months, he said.
Another economist, Ngo Tri Long, former deputy director of the Finance Ministry’s Markets and Prices Research Institute, has proposed that the environmental tax be reduced to help cool gasoline prices.
The proposals come as Vietnam raised the price of popular RON95 gasoline to a new high on Monday amid a supply shortage reported by many stations, especially in the south.
Taxes and fees account for about 42% of gasoline prices in Vietnam, including special consumption tax, import tax, environmental tax, and value-added tax.
The ratio, however, is below average compared to other countries, where it is 45-60%, according to the Ministry of Finance.
Although experts and even the Ministry of Industry and Commerce have been calling for a reduction in gasoline taxes and fees for years, the Ministry of Finance has said no to their proposals because it is an important source of revenue for the government.
Reducing the environmental tax is not appropriate as it is a tool to reduce the negative impact of gasoline users on the environment, the ministry told lawmakers in Hanoi recently when they suggested a reduction .
Another concern is that the tax and fee reductions will drive down retail gasoline prices, which could lead to its smuggling to neighboring countries like Laos and Cambodia where prices are higher, Dinh Trong said. Thinh of the Institute of Finance.
In order to better manage gasoline prices, Luc proposed that the government reconsider the use of the oil stabilization fund.
The fund, set up by the government to stabilize prices, is actually a mechanism for saving part of what customers pay for petrol so that it can be used to curb rising prices.
The manager of a gasoline distributor in Hanoi, who asked not to be identified, said that they, the distributors, only helped customers keep their own money, he said.
When gasoline prices fall, cash begins to flow into the fund, but when it falls, the fund balance becomes negative and distributors have to use their own money to make up for the loss, while having to pay bank interest on borrowings, he mentioned.
He proposed that gas distributors be allowed to reduce or increase retail prices based on their balance sheet instead of having to wait around 10 days for the next nationwide price adjustment.
As of February 21, petrol distributor Petrolimex recorded a negative VND 110 billion ($4.8 million) in its stabilization fund.
The figure at its competitor PVOil was 770 billion VND.
The trade and finance ministries, however, have repeatedly said that the stabilization fund is important to control inflation and prevent the prices of goods from unexpectedly soaring.
On Monday, he used the fund to pare the upside.
Among other solutions, Long proposed that gasoline distributors use price insurance to avoid a spike.
The insurance would help keep oil import prices between $65 and $70, even if global rates could hit $100, thanks to previous deals. This will ensure profits for distributors, he said.
“It is an indispensable tool for international companies, which have been using it for years,” he said, adding that Vietnamese companies are not familiar with it, however.
Amid reports of shortages, authorities have assured that the problem will soon be resolved as distributors have increased their purchases.
Tran Duy Dong, head of the domestic market department of the Ministry of Industry and Trade, said, “In 10 days, the balance between supply and demand will return.”