VietNamNet Bridge - The heavier environmental tax on petrol is expected to seriously affect businesses and burden the poor.

The heavy environmental tax on petrol will affect businesses

The National Assembly’s Standing Committee has approved the plan on raising the environment tax on petrol to the ceiling level of VND4,000 per liter. The move is expected to trigger a new price increase wave.

The tax hike would impact transportation first. Nguyen Van Thanh, chair of the Vietnam Automobiles Transport Association (VATA) said fuel makes up 40 percent of transportation costs, which means that service fees will increase once the tax rises.

“I am sure that if the petrol price rises, transportation firms will either raise the service fee or run overloaded vehicles to offset losses,” Thanh said, adding that transport firms now bear many kinds of fees and charges as well, especially the BOT fee and road maintenance fee.

Le Dang Doanh, a respected economist, said the decision will lead to higher inflation and business cost increase. The prices of all products and services, including food products, will also be increasing.

In the long term, the production cost increase will weaken the competitiveness of Vietnam’s products and services. This will pave the way for imports to flood Vietnam and dislodge Vietnam-made products out of the home market.

“Vietnam’s enterprises will have to fasten their belt and cut costs as much as possible to survive. Small businesses will die, thus resulting in the loss of jobs for laborers,” Doanh warned.

The Ministry of Finance (MOF) is seeking new sources of revenue for the state budget as the revenue from imports/exports has fallen because of tariff cuts.

Doanh commented that instead of raising tax to increase the budget revenue, it would be better to cut budget spending, restructure regular spending and mitigate wasteful expenditures.

Ngo Tri Long, a renowned pricing expert, agreeing with Doanh, pointed out that the state budget wastes money to fund high-ranking officials’ trips abroad, while big money is also wasted in unprofitable projects caused by unreasonable investment decisions by state-owned enterprises.

Long also expressed concern about the consequences the environment tax hike would have on the national economy. Petrol is an important product, which is the input material of many production and business fields. Vietnam controlled inflation in the last few years partially because of low petrol prices.

MOF, the agency which proposed the tax hike, carried out a survey on the possible impact. However, the survey and the figures released by MOF have not been verified by independent organizations.

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