Doctor Dinh Tuan Minh, an economic expert, speaks to the Nông thôn ngày nay (Countryside Today) newspaper on how to use to the environmental tax to protect the environment.

Dr. Dinh Tuan Minh

The Ministry of Finance has recently proposed an increase in the environmental protection tax on diesel, petrol and some other fuels from July 2018. Do you have any comment on the proposal?

I should say that the nature of the environmental protection tax in Viet Nam is not a sum of money to be used in a specific purpose or a special economic field. The collected money will be put into the State budget. Of course, a small sum will be disbursed in environmental protection. In other words, the environmental tax will be used to compensate for the reduction in import-export taxes.

Talking about the impacts of the proposed environmental tax in the context of reducing tax levied on certain consumption items while raising the tax on other items, in my opinion there will be no impact at all. For example, we decide to reduce the import tariffs on diesel or petrol imported from China, South Korea or other ASEAN nations, and at the same, we also decide to levy the environmental taxes on them to compensate for the imported tax losses.

Do you think there are any changes in the end?

No. However, when we want to increase the State budget through increases in environmental protection tax, it is likely that the environmental message might be misunderstood. A key problem here is that the collected money is not predominantly used for the environment, but for many other activities. In its report, the Ministry of Finance (MOF) didn’t explain how the environmental tax would be used.

According to the MOF, the collected tax is estimated at VNĐ57.312 billion ($2.52 billion) per year – an increase of VNĐ15.684 billion ($690 million) per year to the State budget. But what are the impacts on Viet Nam’s other economic sectors and the spending of Vietnamese families?

Tax levied on diesel/petrol is calculated per head as almost everyone uses it in their daily travel by one means of transport or another. The additional $690 million to the State budget per annum actually came from the pockets of people and the enterprises. In other words, the hike in the petrol tax is just like the hike in the electricity tariff in late 2017. So, undoubtedly, the increase in the diesel/petrol price will push market prices up.

In short, the increase of VNĐ4,000 (18 cents) in the environmental protection tax for one litre of petrol will make consumption prices of all market items rise. However, the hardest-hit sector will be the transport sector. To compensate for that, transport enterprises will increase their fares and service charges. This is an unavoidable consequence.

Don’t you think the increase in the petrol price will have a big impact on the poor?

It is indisputable that tax levied on diesel/petrol is kind of a tax levied on all daily essential goods. The hardest hit will be poor people.

Diesel/petrol is a kind of essential good for all people, rich or poor. So in my opinion, the hardest-hit group of people by this decision is the poor. This is a common theory applied to all essential goods in society.

According to the MoF, a key objective of the increase in the environmental tax is increase the State budget. But it will become a burden for consumers, particularly the poor, don’t you agree?

All governments have sought one way or another to increase their budget collection. Diesel and petrol are essential goods for everyone, so as a result it is an easy way to add more money to the State coffers. In a situation where the Government cannot cut its expenditure, the Government has to resort to increasing revenue in order to balance the budget or borrow the money.

Of course, to increase its revenue, the Government would think of the easiest way to have more money – to increase Value Added Tax (VAT) or increase taxes on fuel.

Between the two options, I support the increase in the VAT as it is easy to do and it is fair to everyone.

Many people doubt that the environmental tax will be used properly. How do you respond to that?

Actually in Viet Nam the environmental tax levied on diesel/petrol accounts for almost 93 per cent of the tax. But environmental pollution in many places has reached an alarming level. This means that the collected environmental tax has not been properly used. So, I myself object to the hike in the environmental protection tax. If we pay tax to protect the environment, the tax collection should be used in all activities to protect the environment.

Another option is to use the environmental tax to change people’s consumption behaviour, for example, to prompt them to use environmentally-friendly goods; or to levy heavy taxes on nylon or hydrochlorofluorocarbons (HCFC) and others.

Another suggestion is to use the collected tax to reinvest in environmental protection activities, including waste treatment or canal dredging.

All in all, the collected money through the environmental protection tax must be used for the right purposes and in a transparent manner. — VNS