The petrol buyer in the first conversation was a young man, possibly a student, while the person in the second conversation was a taxi motorbike driver. They initially wanted to fill up the petrol tanks, but finally decided to buy less petrol.

The all-time high petrol prices have changed the lives of many people, pulled them down to below the poverty line and stifled many development achievements. Vietnam’s economy, the most open in the world, is bearing serious damage from crises, including trade war, Covid-19 pandemic and the Russia-Ukraine conflict.

Tax cut

Nguyen Dinh Cung, a member of the Prime Ministerial Advisory Board, said: “Tax cut and tax exemptions to reduce petrol prices now are more urgent and necessary than ever."

“The National Assembly (NA) and Government, within their competence, need to immediately implement necessary solutions to force the petroleum prices down, ease pressure on inflation so as to ease difficulties for businesses and people,” he added.

Cung is one of many experts and scholars who have voiced the need to ease the tax burden on businesses and people.

Former Director General of the General Statistics Office (GSO) Nguyen Bich Lam said petroleum products are national strategic products, used in most business fields and people’s consumption. Petroleum prices have been increasing, affecting production and effectiveness of the socio-economic recovery and development program.

He believes that the NA and Government need to cut taxes on petroleum products so as to control prices and prevent them from climbing to overly high levels.

“This is considered an investment item which will bring benefits immediately and create stable sources of income for the state budget in the near future,” Lam said.

According to Lam, as petroleum prices soar, many countries have applied measures to stop increases by cutting taxes and fees.

The Thai government, for example, has cut 50 percent of luxury tax on diesel for three months, which leads to the reduction of 17 billion baht in tax revenue. The country also uses the oil fund to keep petrol price stable at 30 baht per liter.

In South Korea, the government has applied a 20 percent tax cut on petroleum products, expected to be valid until July. It also has left the possibility of raising the tax cut to 30 percent open, if petroleum prices in the world don’t decrease.

Lam said that it is necessary to slash environment tax, luxury tax and VAT. Curbing petroleum prices is important to stabilize the macro-economy, therefore, the measures to control petroleum prices need to be implemented flexibly and effectively. Overly high petroleum prices will cause many difficulties for the economy, reduce the effectiveness of monetary and fiscal policies.

Local newspapers reported that a liter of petrol bears VND9,500-10,000 worth of taxes, including import tax, luxury tax, value added tax and environment protection tax, or more than 30 percent. If counting in other kinds of fees, the total proportion of taxes and fees would account for 35 percent of the selling prices.

Petrol price and inflation

The government’s May report on the socio-economic development says that domestic petroleum prices are increasing in line with the world prices, while the prices of essential goods and services are increasing because of the increase in input material prices. These factors led to the CPI increase in May.  Of the 11 categories of consumer goods and services, 10 saw prices up.

It’s obvious that the price storm is posing challenges to Vietnam’s goal of keeping inflation rate at 4 percent this year. Some experts estimated that if the petroleum prices are uncontrolled, inflation rate would be 6-7 percent this year and higher next year.

Vietnam experienced high inflation in 2008-2012 and understands that high inflation will cause many serious consequences. The high inflation made the VND expensive. A 2020 report of the International Monetary Fund showed that the lending interest rate was 7.8 percent per annum on average, higher than the 4.5 percent in ASEAN-4 countries and 5.7 percent of ASEAN-6. With such a high capital cost, Vietnam’s products became uncompetitive. 

High inflation destroys many properties, pushes many people into labor, sinks millions of people back into poverty, and challenges the country's development goals by 2030 and 2045.

Meanwhile, the state budget collection was not affected in the years of high inflation. In the first five months of 2022, it reached VND806.4 trillion, an increase of 19 percent year on year.

Tu Giang