Naturally, the fuel price increase has again stolen the limelight of local media this week. News reports show the struggling corporate sector has expressed fear that input costs and inventories would rise, piling pressure on them. Consumers have also raised eyebrows as their interests have been ignored by the fuel trading firms that are now given much-sought-after power to decide price adjustments on their own. Government Decree No. 84 on fuel trading allows for price adjustments at least 10 days apart and a single price increase of 7% or below. And fuel vendors can revise up prices three times in just nearly two months. There is concern that if world oil prices keep advancing, domestic prices could jump two more times from now to the end of this month.

According to Vietnam National Petroleum Group (Petrolimex), the country’s largest fuel trader with 60%-plus market share, fuel firms had racked up heavy losses due to steady world price increases, so they explain retail price hikes were their last resort. The Finance Ministry’s calculations indicate that as of Sunday, fuel firms had lost VND823 on every liter of gasoline sold, VND887 for kerosene and VND524 for heavy fuel oil.

Experts, however, say fuel prices might not have been that high if a labyrinth of taxes and fees had been taken off. The Finance Ministry and the Ministry of Industry and Trade might have opted for a fuel import tax reduction to help traders offset their losses, if any, and prevent the economy already bruised by sagging business activity, ballooning debt, mounting inventory and faltering consumption from any further price volatility shock.

The move by the two ministries is a clear indication of a preference of state budget revenue collection stability over consumption stimulus. This year’s State budget collections are forecast to rise 5-8% against the previous year after a drop of 2.8% in the January-July period.

There were good reasons for fuel prices to rise, indeed. Economist Le Dang Doanh says in Tuoi Tre newspaper a fuel price increase is justifiable, citing rising world oil prices and the interruption of Dung Quat oil refinery, the only in Vietnam. However, he notes, the current tough economic conditions require thorough consideration and an adjustment that could help avert negative impacts on the economy and daily lives of people who have found their incomes shrinking.

Doanh says it is time for the State and the Ministry of Finance to consider sharing part of budget revenues with people and businesses by reducing fuel import tariffs. The five upward fuel price adjustments amounted to VND5,400 a liter while the five downward revisions totaled VND3,200, leaving a gap of VND2,200 which partly went to State coffers in the form of tax and fee.

Doanh points out that there are many sorts of tax imposed on fuels, including 12% import tax, 10% value-added tax, 10% special consumption tax and a VND1,000/liter environmental protection fee. The total tax and fee amount is around VND6,000 a liter.

For the sake of the State’s budget, the Ministry of Finance insists on the current tariffs, saying that the current rates are low compared the ceilings. Maintaining the current taxes will help the State budget swell fast due to oil and gas volume consumed in the country and crude oil exports.

Nguyen Manh Hung, chairman of the Hanoi Transport Association, is quoted by Tien Phong newspaper as saying that deductions for the fuel price stabilization fund should be suspended to curb fuel prices from soaring. Calculations by a business in the industry show gasoline prices would rise a mere VND400 a liter if import tax was slashed by just two percentage points and enterprises were allowed to suspend feeding the fund.

Besides, the 12% import tax rate on petroleum products should be slashed as well to help transport firms cut input costs. As customer demand has slumped by 20-30%, enterprises cannot charge more on transport services, Hung says.

Another expert say the authorities are afraid that the fuel price stabilization fund would run dry if taxes and fees were lowered right now. If world prices keep rising in the future and taxes are cut to 0%, all external impacts will be put on retail prices. This is also a challenge for inflation control while gasoline prices in the country may jump sharply as in early 2011.

Source: SaigonTimes