Oil Report

Vietnam plans to hike fuel taxes in fight against pollution, debt

HANOI, April 4 (Reuters) - Vietnam plans to raise taxes on fuels starting in July to reduce pollution and pay off public debt, the finance ministry said on Wednesday, though analysts caution the levy could increase inflation and hurt businesses in the country.

Vietnam will raise the environment tax on gasoline by 33.3 percent to 4,000 dong ($0.1754) per litre , the Ministry of Finance said on its website. Taxes on diesel fuel, coal and lubricants would also increase though the ministry did not indicate by how much.

“The planned tax hike is part of a move to restructure the state budget with an aim to ensure the safety and stability of the national finance system,” Deputy Finance Minister Vu Thi Mai said in the statement.

The tax hike is also part of Vietnam’s strategy to limit products that cause pollution, the ministry said.

As Southeast Asia’s fastest-growing economy, Vietnam is facing a pollution problem. The capital, Hanoi, enjoyed little more than one month of clean air last year, according to a January report by the Green Innovation and Development Centre.

The government must also keep its public debt below 65 percent of its gross domestic product and the new tax will be used to pay down that debt.

There are concerns, however, that the higher tax will raise costs for businesses and consumers.

“This would definitely hit businesses as they would have to face higher input costs, leaving them less competitive,” said Hanoi-based economist Cao Si Kiem, a former governor of the State Bank of Vietnam.

The statement also said the tax increase would compensate for the decline in import and export tax revenues as Vietnam integrates further into the global market.

The country has signed around a dozen free trade agreements that will remove or reduce taxes on several imports.

If approved by the government, the tax increase would raise inflation by 0.11 to 0.15 percentage points in 2018, Mai said. Vietnam has set an inflation target of 4 percent for this year.

“The tax hike will result in higher input costs for enterprises, with those operating in the transport and logistics industry being hurt first,” said Can Van Luc, and economist with the Bank for Investment and Development of Vietnam.

“But it’s necessary to combat environmental pollution for sustainable growth in Vietnam”. ($1 = 22,809 dong) (Reporting by Khanh Vu; Editing by James Pearson and Christian Schmollinger)