Vietnam’s Ministry of Finance proposes lower oil MFN tax rate

Vietnam's Ministry of Finance proposes lower oil MFN tax rate

The Ministry of Finance of Vietnam is seeking comments on the Decree (Draft) on Export Tariffs, Preferential Import Tariffs, List of Goods and Absolute Tax Burdens, Mixed Taxes, and Import Taxes Beyond Customs Quotas. A point worth noting in the draft is the proposal to reduce the preferential import tax rate for petroleum.

The Ministry of Finance said that due to the recent volatility in the world oil market, the Ministry has received proposals from many institutions and units on reducing the preferential tax rate on gasoline imports to diversify supply.

At present, Vietnam has 36 oil wholesale companies and more than 300 oil distribution companies (the source of goods supply for the agency system). Among oil wholesale enterprises, oil groups account for about 45-50% of the market share. The oil supply source of wholesale enterprises mainly comes from Yishan and Pingshan refinery and chemical plants, and the rest are mainly imported from South Korea and ASEAN countries according to the tax rate stipulated in the Free Trade Agreement (FTA).

Currently, the most-favored-nation (MFN) rate of unleaded gasoline for motor use used in the production of RON92 and RON95 gasoline is 20%; Vietnam-Korea Free Trade Agreement (VKFTA), ASEAN Trade in Goods Agreement (ATIGA), Comprehensive and The rate specified in the Progressive Trans-Pacific Partnership (CPTPP) and the Vietnam-Eurasian Economic Union Free Trade Agreement (VNEAEU) is 8%; the Vietnam-EU Free Trade Agreement (EVFTA) is 20%. Among them, gasoline imported with preferential import tax (most-favored-nation treatment) accounts for a very small proportion of national gasoline sales.

The Ministry of Finance said that fluctuations in the price of petroleum products will directly affect the price level, the domestic consumer price index (CPI) and the implementation of economic and social development plans proposed by Congress and the government. Therefore, in order to ensure national energy security, the Ministry of Finance proposes to reduce the most-favored-nation import tax rate for gasoline products to enrich gasoline supply sources, while ensuring that the tax rate under the free trade agreement signed with Vietnam is consistent.

Specifically, the Ministry of Finance recommended that the government lower the MFN tax rate on unleaded gasoline for motor vehicles from the current 20% to 12% (a 4% difference from the FTA rates in Korea and ASEAN).

The Ministry of Finance of Vietnam said that the above adjustment plan may not have much impact on domestic gasoline prices, because currently imported gasoline is mainly from ASEAN and South Korea, but it will promote the diversification of oil supply, such as Vietnam can import gasoline from China, the United States and Middle East countries , in order to prevent the adverse effects of fluctuations in world market supply.