Lower gasoline taxes to control price increases, experts advise

Reducing gasoline taxes and fees, and reconsidering the use of the price stabilization fund could help “cool down” surging fuel prices amid shortages, experts say.

Lower gasoline taxes to control price increases, 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, head economist of state-owned lender BIDV.

Thailand, for example, has cut down the special consumption tax on diesel by half for three months, he said.

Another economist, Ngo Tri Long, former deputy head of the Market and Price Research Institute under the Ministry of Finance, proposed that the environmental tax be reduced to help cool down gasoline prices.

The proposals are being made as Vietnam on Monday increased the price of the popular RON95 gasoline to a new peak amid a shortage in supply reported by many stations, especially in the south.

Taxes and fees account for around 42 percent of gasoline prices in Vietnam, including the special consumption tax, import tax, environmental tax, and value-added tax.

The ratio, however, is lower than average when compared with other countries, where it is 45-60 percent, according to the Ministry of Finance.

Lower gasoline taxes to control price increases, experts advise

Although experts and even the Ministry of Industry and Trade have been calling for a reduction of taxes and fees on gasoline for years, the Ministry of Finance has said no to their proposals as this is a large source of revenue for the government.

Cutting down environmental tax is not appropriate as this is a tool to reduce the negative impact of gasoline users on the environment, the ministry told Hanoi lawmakers recently when they suggested a reduction.

Another concern is that reductions in taxes and fees will lower retail prices of gasoline which could lead to it being smuggled to neighboring countries like Laos and Cambodia where prices are higher, said Dinh Trong Thinh of the Finance Institute.

To better manage gasoline prices, Luc proposed that the government reconsiders the use of the petroleum stabilization fund.

The fund, set up by the government to stabilize prices, is actually a mechanism of saving a portion of what customers pay for gasoline so that it can be used to cool down rising prices.

The director of a gasoline distributor in Hanoi who asked to not be identified said they, the distributors, only help customers keep their own money, he said.

When gasoline prices drop, cash starts to come into the fund, but when they fall, the fund balance goes negative and distributors have to use their own money to make up for the loss, while still having to pay the bank interest on borrowings, he said.

He proposed that gas distributors are allowed to reduce or increase retail prices depending on their balance sheet instead of having to wait for about 10 days for the next nationwide price adjustment.

As of February 21, gasoline distributor Petrolimex was recording a negative of VND 110 billion ($4.8 million) in their stabilization fund.

The figure for its competitor PVOil was VND770 billion.

Lower gasoline taxes to control price increases, experts advise

The trade and finance ministries, however, have kept reiterating that the stabilization fund is important for controlling inflation and keeping the prices of goods from surging unexpectedly.

On Monday, it used the fund to narrow down the hike.

Among other solutions, Long proposed that gasoline distributors use price insurance to prevent a surge.

The insurance would help keep oil import prices at $65-70 even though global rates could rise to $100, thanks to previous agreements. This will ensure profits for distributors, he said.

“This is a must-have tool for international companies, which have been using it for years,” he said, adding that Vietnamese firms, however, are not familiar with it.

Amid the reports of shortage, authorities have assured that the issue will soon be resolved as distributors have been increasing their purchases.

Tran Duy Dong, head of the domestic market department under the Ministry of Industry and Trade, said: “Within 10 days, the supply-demand balance will return.”

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