VietNamNet Bridge - Offering tax incentives is a method Vietnam uses to attract investors to oil refinery projects. With the incentives, investors can get benefits of billions of dollars. However, the incentives are the cause of many unsettled problems.

Huge tax incentives for super projects

Of the investment incentives offered to investors, the import tariff of 7 percent on petroleum products, 5 percent on LPG and 3 percent on other petrochemical products is always demanded by investors. The policy was first applied to the Dung Quat Oil Refinery.

This means that though the oil refinery is in Vietnam, its products still bear import tariffs like imports. With the policy, if Vietnam applies the import tariff of 20 percent on petrol, Dung Quat will have to pay 13 percent only and retain 7 percent.

If the import tariff is cut to seven percent, the State will not collect any dong from Dung Quat. And in case Vietnam cuts the tariff to zero percent, PetroVietnam, on behalf of the state, will have to compensate 7 percent to Dung Quat.

After Dung Quat, the $9 billion Nghi Son oi refinery project can also enjoy preferences. Nghi Son has even more preferences than Dung Quat as the preferential mechanism is valid for 10 years.

Tax incentives are conditions that investors put forward when ‘haggling’ with Vietnam.

Thai PTT Group, when registering the Nhon Hoi oil refinery project, capitalized at $28 billion, also insisted on the 3-5-7 percent tax rates.

According to PetroVietnam calculation, if Dung Quat had not enjoyed the preferences, it would have incurred a loss of VND27.6 trillion in 2010-2014.

Investment incentives backfire

Offering tax incentives is a method Vietnam uses to attract investors to oil refinery projects. With the incentives, investors can get benefits of billions of dollars. However, the incentives are the cause of many unsettled problems.

However, the incentives have unexpectedly become a heavy burden on both Dung Quat and the state budget because of Vietnam’s international integration.

Since 2015, the import tariffs on many products sourced from ASEAN, except petrol taxed at 20 percent, have been decreasing sharply.

Since January 1, 2016, the import tariffs on diesel and Jet A1 has been lowered to zero percent. Meanwhile, the tax rates applied to these products of Dung Quat still stay at 10 percent.

As such, Dung Quat’s products, made and sold domestically, have to bear the import tariffs higher than the imports from Singapore. Dung Quat has repeatedly complained about the unreasonable situation, saying that its products cannot be sold and it may have to shut down.

The Ministry of Finance had to lower the import tariff applied to Dung Quat to 7 percent. With the tax rate, the selling price of Dung Quat can be equal to products from ASEAN. However, this means that the preferences for Dung Quat have no significance.

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Luong Bang