A petrol station in Hà Nội. — VNA/VNS Photo Trần Việt

Compiled by Mai Hương

People and businesses are expecting petrol prices will drop substantially from next month after the National Assembly (NA) Standing Committee on March 23 passed the resolution on reduction of environmental protection tax rates on petroleum, oil and lubricants.

The resolution, which will take effect from April 1 to December 31, 2022, slashes the tax rate for gasoline from the current VNĐ4,000 to VNĐ2,000 per litre. The rate for diesel, fuel oil and lubricant will drop from VNĐ2,000 to VNĐ1,000 per litre, and grease by kerosene by VNĐ1,000 and VNĐ700 per litre.

The tax on jet fuel which had been lowered by VNĐ1,500 per litre remains unchanged.

From early next month, each litre of gasoline and oil of all kinds will be reduced by VNĐ700-VNĐ2,000. This shows the National Assembly and Government’s efforts to support people’s lives and production activities, contributing to macroeconomic stability.

Along with the uptrend in global oil prices since the beginning of this year, the domestic petrol prices increased seven times in a row with a total of VNĐ6,500 per litre, especially a shocking increase of nearly VNĐ3,000 per litre on March 11.

The fuel prices decreased by a slight VNĐ600 per litre on March 21 despite a drop in global oil prices in mid-March which raised concerns from people and businesses that State management on petrol products does not match with fluctuations in the global markets.

Petroleum is a strategic, important and essential commodity that has a strong impact on production and business activities of enterprises, people's lives and macroeconomic stability.

However, there was a time when people, especially in some southern provinces and cities, were anxious when they could not buy fuel in many petrol stations after stock levels ran dry. Some stores even limited the amount of fuel people could buy a day.

Due to the lack of information along with the concern that supply would dry up and petrol prices would continue rising, before each petrol price adjustment period, many people brought plastic cans and bottles to buy gasoline for storage even when this item is exposed to risk of fire or explosion when stored improperly.

Before the downward adjustment on March 21, petrol price reached nearly VNĐ30,000 (US$1.30) per litre, causing fuel-intensive industries such as transportation and fishing to suffer losses after being hard hit by two years fighting the COVID-19 pandemic.

In addition, the prices of goods at residential markets have increased continuously while suppliers have proposed to increase prices in supermarkets because of high gasoline prices.

Halting price stabilisation fund use

According to the Ministry of Industry and Trade (MoIT), the petrol price stabilisation fund has almost been exhausted after heavy subsidy on petrol prices. The funds were negative at 13 enterprises. Therefore, in the last operating period, the authority stopped spending this fund on regulating prices of petroleum products. At the same time, it set aside a fund from VNĐ200-VNĐ500 per litre.

The petrol price stabilisation fund is aimed to stabilise domestic petrol prices to support consumers and control inflation. When the world price fluctuated from 40-60 per cent, following the Government’s direction, the ministries of Industry and Trade and Finance tried to keep the price at a tolerable level of 24-40 per cent growth.

Trần Huy Đông, Director of the MoIT’s Domestic Market Department, said due to the exhaustion, this fund will not be used to decrease gasoline prices in the next operating period but rely on environmental protection tax reduction.

In the basic gasoline price structure, each liter of gasoline and oil sold is subject to four types of taxes including value-added tax, import tax, special consumption tax and environmental protection.

According to economists, domestic gasoline prices depends on world price movements, along with the method of setting up and spending the price stablisation fund. During the last operating period, the world oil price sometimes dropped to nearly $100/barrel, but then rebounded due to concerns of supply glut when the source of oil and gas from Russia is embargoed while the Organisation of the Petroleum Exporting Countries (OPEC) has not decided to increase production.

Ending last week, the world oil price was anchored around $120 per barrel but is expected to continue to rise as the Russia-Ukraine crisis has yet to cool down.

Nguyễn Tiến Thỏa, former Director of the Price Management Department under the Ministry of Finance, said when the world oil price increases, Việt Nam will benefit from crude oil exports, along with revenue from taxes and fees on domestic crude oil and petroleum products, contributing to increase State budget revenue.

"Currently, the application of environmental protection tax reduction will help cool down gasoline prices," Thỏa said.

"But in the long term, it’s necessary to reform measures to regulate petrol and oil prices in accordance with the market mechanism, avoiding the current ‘half-hearted' solutions.”

He suggested moving towards eliminating cyclical pricing, allowing enterprises to self-value and compete on prices following the market signals.

According to experts, in order for gasoline prices to drop more sharply, in addition to reducing environmental protection taxes, ministries and branches must calculate and take into account longer-term scenarios, such as when oil prices go up to $140-$150 per barrel, and may consider more tax cut such as consumption tax and value-added tax, along diversifying the supply sources.

Economist Lê Đăng Doanh said to reduce dependence on gasoline, we need to promote the use of solar energy, wind energy, and renewable energy to reduce fuel use. At the same time, it is necessary to have better measures to use bioenergy as Việt Nam has a lot of potential.

“Currently we still keep the 10-day price adjustment. In my opinion, it should be adjusted within two days as the difference between the world and the domestic price is too big," Doanh said. — VNS