Conflicts of Interest in Resource Tax Hike

Mr Pham Dinh Thi, Director of Tax Policy Department under the Ministry of Finance, said, according to negotiation process and signing of free trade agreements (FTAs), the time that Vietnam has to abolish export taxes in line with FTA commitments is very close. As soon as export duties are scrapped to meet international promises, the State budget revenue will be undoubtedly affected while the exploitation of natural resources for export is likely to increase, thus giving rise to domestic material shortages. “Therefore, it is necessary to review and adjust domestic sources of potential revenues and the hike in resource taxes is appropriate to ensure the continued development of the domestic economy and guarantee State budget revenue."

 

According to the draft resolution, which is being widely spread to collect comments from the business community, most of current resource tax rates will be revised up from 2 percent to 12 percent. Specifically, the tax for iron ores is proposed at 7 - 20 percent compared to the current 12 percent. The proposed and current tax for titanium is 7-20 percent (from current 16 percent), gold imposed 9-25 percent (current 15 percent), wolfram and antimony levied 7-25 percent (current 18 percent), and copper subjected 7-25 percent (current 13 percent). Notably, the tax for aluminium and bauxite is kept unchanged at 12 percent as the bauxite-alumina complex in Lam Dong province and the Nhan Co alumina project in Dak Nong province are projected to make profit in 2018 and 2021, respectively.

The new tax on anthracite coal ore and other coals is suggested at 4 - 20 percent, compared with the current tax 7 percent while the duty on anthracite coal, brown coal and coking coal is proposed at 6 - 20 percent, compared with the current tax rate of 9 percent.

 

To raise the persuasiveness of the draft resolution, the Ministry of Finance released a report showing that the total amount of royalties collected was over VND39 trillion a year on average in the 2011 - 2014 period, accounting for 4.9 percent of the total State budget revenue. Specifically, tax from crude oil was VND31 trillion a year, representing 79 percent of total resources tax revenue while other sources contributed only VND8.1 trillion, accounting for 21 percent.

 

The ministry pointed out that current tax rates on national resources fail to protect and rationalise resources exploitation. The exploitation and processing of some metal minerals are still based on backward technologies, thus wasting considerable resources and polluting the environment.

 

Therefore, the ministry will study and review to make rational adjustments to royalties on specific groups of resources to rationalise protection and exploitation of resources in the context of international integration, strengthen State management in this field, and unify legal document systems on State revenue collection.

 

Remarking on the draft resolution, Mr Nguyen Van Bien, Deputy General Director of the Vietnam National Coal, Mineral Industries Holding Corporation Limited (Vinacomin), said that if new royalty rates are approved as outlined in the current draft, the objective of increasing State revenue is achievable, but it will do serious harm to businesses. Companies will not be able to make a profit after one year the draft regulation takes effect.

 

An official from Nui Phao Mining and Mineral Processing Co., Ltd said the increase in resource tax rates will bring about double impacts on production and business operations of enterprises. Mr Hong said if the value of royalties reaches VND1 trillion a year, mining companies will be seriously affected. Companies will lose their interests in downstream processing, but accept to operate in a small scale and sell rude products.

 

The natural resource tax hike will push up mining costs. Therefore, it is likely that enterprises would tap rich ores and skip poor ones, resulting in a waste of natural resources.

 

The increase in resource duties proposed by the Ministry of Finance is the essential. In spite of expressing support for this move, businesses recommended that the Government should have a reasonable roadmap to stabilise the business environment.