Under Resolution No 34/NQ-CP issued on June 30, the government prolonged the exemption of the environmental protection tax, value-added tax (VAT) and most-favoured-nation (MFN) import tariff on petroleum products, fuel production feedstock and aviation fuel for an additional three months.
The measures were previously due to expire on June 30.
However, the government has reinstated the special consumption tax on gasoline from July 1, meaning that a tax rate of 10 percent is applied on gasoline, 8 percent on E5 biofuel and 7 percent for E10.
The Ministry of Industry and Trade may propose adjustments to the duration of the tax relief if market conditions or macroeconomic management requirements warrant changes.
The tax relief was first introduced to mitigate the impact of tensions in the Middle East on domestic fuel prices.
Although international oil prices have eased following a ceasefire agreement between the United States and Iran and the reopening of shipping through the Strait of Hormuz, the Ministry of Finance said energy markets remain vulnerable to renewed geopolitical disruptions.
The ministry also noted that much of the fuel currently supplied in the domestic market was purchased earlier at higher prices, while lower-cost imports take time to reach Vietnam because of contract negotiations and shipping lead times.
Maintaining the MFN import tariff at zero will allow fuel importers to diversify supply sources beyond ASEAN markets, reducing dependence on traditional suppliers and strengthening energy security, the ministry said.
The ministry also said that continuing the VAT exemption would help reduce transport, logistics and production costs across the economy, which would contribute to containing inflation, stipulating consumer demand and promoting economic growth.
The ministry estimated that if all fuel-related taxes were restored immediately, except the special consumption tax on gasoline, domestic fuel prices could increase by between 43 percent and 67.2 percent. This could push up average consumer inflation by about 0.78 percentage point this year.
Under the extended tax relief, E5 and E10 gasoline prices are expected to rise by around 7-8 percent, while diesel prices would remain broadly unchanged.
Overall fuel prices would increase by about 5 per cent on average, which would add an estimated 0.11 percentage point to consumer inflation, much lower than in the scenario in which all taxes are restored.
The ministry estimated the extension would reduce State budget revenue by around VND15.4 trillion (US$590 million) during the third quarter compared with restoring the taxes in full.
However, extension helps support macroeconomic stability, energy price control and a gradual return to normal taxation, while avoiding sudden shocks to consumers and businesses.
