Environment protection tax (EPT) will be imposed next year on products classified as hazardous to the environment. The move is expected to encourage enterprises to make more "green" products.
Discarded plastic bags litter the banks of the Red River, enhancing pollution. Environment protection tax will be introduced next year to limit the production of products classified as hazardous to the environment.
The law, which will come into effect on January 1 covers eight groups of products, including oil and petrol, coal, hydro-chloro-fluoro-carbon (HCFC) solution, plastic bags and chemical substances of restricted use such as herbicides, pesticides, disinfectants and preservatives.
"The imposition of the EPT will help raise awareness for environment protection of the whole society towards environmentally friendly products," said Deputy Minister of Finance Do Hoang Anh Tuan.
Enterprises would be encouraged to renovate their production technology, aiming at turning into green businesses, according to Chas Roy Chowdhury, head of the UK Association of Chartered Certified Accountants' Taxation Department at a recent conference in HCM City.
In addition, the EPT would also help gradually form the consumer habit of seeking and using environmentally friendly products, he said.
Under the law, each litre of oil and petrol will be taxed at a rate ranging from VND1,000 – 4,000 ($0.048 – 0.2). The current environment protection fee applied to oil and petrol will be dropped out and replaced by the EPT.
The ministry estimated that the ETP imposed on oil and petrol would reach VND12 trillion ($572 million) in 2012, 14 percent higher than environment fees collected during 2010. The current environment protection fee applied to each litre of oil and petrol ranges from VND300 ($0.015) to VND1,000 ($0.046) and some kinds are not taxed at all.
However, the law on the EPT failed to cover all products classified to be hazardous to the environment, such as cigarettes, fertilisers, detergents and batteries.
According to the Ministry of Natural Resources and Environment, the list of products to be included in the tax is open, and products will be added when necessary by the ratification of the National Assembly.
A research on the possible impact of the EPT on Vietnam's economy conducted by Nguyen Van Chan from the Vietnam National Economics University and Ian Coxhead from the University of Wisconsin – Madison revealed that the ETP might increase the Government revenues by about 3.5 percent.
Meanwhile, there would be a decline in the gross domestic product (GDP) of 0.8 percent in the short run, along with a rise in the inflation rate by between 0.4 percent and 0.7 percent.
The study also revealed that the industries directly targeted by the tax would be seriously affected with a 1.7 percent dip in coal production output and a 8.6 percent drop for gasoline, for instance. As a consequence, the price of transport would increase by 1 percent, which might raise costs throughout the entire economy, the study stated.
The price of plastic bags would be doubled when the tax is applied, which may reduce consumption as well as turnover, said an official from Thuan Phat Company in Hanoi – a plastic bag producer. The enterprise might be urged to think of ways to begin producing environmentally friendly products, he said.
Hoang Thuy Trang, a consumer living in Hoang Mai District, Hanoi, said she would prefer to use environmentally-friendly bags to plastic bags when going shopping at supermarkets. She reasoned that it could help protect the environment.
The improvement in the environment and quality of life will be undeniable when the law comes into effect, according to President of the Vietnam Tax Consultants' Association Nguyen Thi Cuc.
"The transparency and close control in the enforcement of law is important to create public confidence in the Government's EPT – related policies," she said.
The Government should use the revenue from the EPT to compensate for residents through investment in infrastructure and implementing measures to protect the environment as well as social affairs, Cuc added.
The estimated revenue from the EPT would be VND57 trillion ($2.7 billion) per year.