A customer has his motorbike filled at a gas station (Photo: VNA)

Hanoi (VNA) - The Vietnam Petroleum Association (VINPA) has proposed to establish commercial barriers to protect local firms once import duties on fuel products are gradually reduced to zero percent.

VINPA Chairman Phan The Rue said gradual tax reduction to zero percent had put pressure on domestic petroleum producers and distributors.

Rue told the media that the country should have a long-term development strategy for the petrol market, at least to the year 2020. In particular, important policies of whether the local market should be opened to foreign companies or not should be formulated.

Currently, several petroleum firms have been selling shares to FDI businesses, he said, adding that the Government should have economic solutions or technical barriers in place to stipulate what FDI firms are permitted to do for the sector to ensure energy security.

The technical barriers could include non-tariff measures, requirements on standards or a distribution system.

The chairman also shared experience from the retail sector, citied by the tuoitre.vn newspaper. He stated that the lack of strict barriers had led to FDI businesses dominating the market.

The Government, therefore, should have solutions to resolve difficulties faced by Binh Son Refinery and Nghi Son Refinery to improve the competitiveness of the local petroleum sector. Nghi Son Refinery, which is meant to become operational in 2018, in particular, could sufficiently meet Vietnam’s petrol demand.

However, the issue was whether the production cost of local refineries could compete with foreign firms, the chairman told the newspaper.

According to trade accords Vietnam has joined, import duty on fuel will be zero by 2024. Rue proposed the adjustment of special consumption tax to avoid a serious State budget deficit. Specifically, environmental protection tax should be adjusted this year, followed by special consumption tax next year and VAT in the 2020-22 period.

Currently, income from fuel import tax accounts for seven percent of the State budget, he said, adding that agencies should carefully prepare a roadmap for raising other taxes to ensure the harmony of State budget income.

The association said fees and taxes make up more than 50 percent of the fuel price. Therefore, cutting fuel import tax to zero percent necessitates increasing other taxes to make up for the lost income.

“Once the import duty is cut to zero, we should increase other taxes to make up for the loss. It is necessary to ensure that the total tax sum accounts for half the retail fuel price. As the import tariff moves down to zero, other taxes must be raised to offset the shortfall. Paying higher taxes is how every citizen shows his/her responsibility to the country,” he said.

In fact, the Ministry of Finance has several times indicated its intention to raise environment tax for fuels from the current 4,000 VND per litre to 8,000 VND. A92 gasoline, the country’s most widely used fuel, currently sells for 17,063 per litre VND, including the 3,000 VND per litre environment tax. If the new tax rate is approved, the price would rise to more than 22,000 VND per litre, analysts calculated.

The association is strongly supporting the proposal on so-called environment tax hike policy. However, the public is not.

Bui Danh Lien, chairman of the Hanoi Transport Association, said a shortfall in the State budget required solutions other than hiking environment tax, which is not used for the benefit of the environment. He believed there were many solutions to the budget shortfall with the most important one being to cut public spending.

Sharing his ideas, Truong Dinh Tuyen, former minister of industry and trade, said increasing taxes was not the right solution.

Tuyen said increasing taxes might help reduce losses to the State revenue in the short-term but was not a sustainable solution.

“We should try instead to cut taxes and assist local businesses in reducing input cost, which will help boost their performance,” he said, adding that what’s more important is to create a competitive fuel market that provides the best retail prices for consumers.-VNA