National flag-carrier Vietnam Airlines and Jetstar Pacific have recently called on the Ministry of Finance to reduce the import duties slapped on airline gasoline, a proposal that was later turned down due to an incentive policy granted to the country’s oil refineries.

Photo: Tuoi Tre

Under special treatment approved by the finance ministry, Nghi Son Refinery, the second planned oil refinery in Vietnam, will be allowed to sell its fuel and gas commodities at import prices, even though the products are locally produced.

Moreover, wholesale prices of the refinery’s products are also allowed to include the import tariffs of the equivalent fuel, oil and gas products.

Specifically, fuel commodities produced by Thanh Son Refinery will be sold at the import price plus a 7 percent import duty, while the respective tax rates for petrochemical commodities and liquefied petroleum gas are 3 and 5 percent. The incentive will be valid for ten years starting in 2013, when the refinery is scheduled to become operational.

What’s most important about this policy is that, if the import duties slapped on fuel products are lower than the said rates, the government will earmark money to make up for the disparity.

Hence, any proposal to reduce fuel import duties has to be carefully considered as the government will lose money on the lowered tax rates.

After Binh Son refinery managed to receive the incentive before it has become operational, Dung Quat Oil Refinery also jumped in and asked for similar special treatment.

The finance ministry gave the request a go-ahead, according to the refinery’s operator, the Binh Son Refining and Petrochemical Co (BSR).

“In case fuel import taxes are reduced, PetroVietnam is required to buy Dung Quat products at the incentive prices [import price plus taxes],” BSR CEO Nguyen Hoai Giang told Tuoi Tre.

Price cuts hindered

In receiving the airline fuel tax cut proposal from the two carriers, the Ministry of Finance frankly responded that the duties cannot be slashed due to the incentives granted to the refineries.

“The ministry has to consider if the state budget is capable of making up for the price disparity once import duties are slashed,” commented Doctor Vu Dinh Anh, former deputy head of the Market and Price Research Institute.

The ministry promised to assist the airliners in “a different way,” but still asserted that by all means, the fuel import tariffs will not be reduced to lower than 7 percent, so that the government will not have to open its pocket to recoup for the refineries.

Doctor Le Dang Doanh, former member of the Prime Minister's research board, said incentives are necessary to boost the investment in refineries in Vietnam, but the special treatment should balance with social interest.

The economic expert refused to comment on the gains and losses of the refinery incentives, but expressed concern that it will be more difficult for import duties of not only airline gasoline, but A92 gasoline and other oil products, to be cut in the future.

Source: Tuoi Tre News