Chapter VI Environment-Related Taxes in Vietnam Chapter VI Environment-Related Taxes in Vietnam 169 Environment-Related Taxes in Vietnam Takuji Yano* and Nguyen Van Phung** Introduction Sustainable growth is a basic, significant and long term goal for every country, and environmental protection is becoming a major issue, of equal importance to economic growth For developing countries, especially transitional economies like Vietnam, environmental protection policy should be established and implemented alongside other relevant policies, such as those restructuring the economy, enhancing economic growth, eradicating poverty and creating jobs After 20 years of renovation, Vietnam has recorded encouraging achievements in economic growth, national security and social order, poverty alleviation, urban and rural planning, development investment in infrastructure, development of industrial parks, removing industrial factories from urban and densely populated areas in order to further facilitate economic development and, at the same time, tackling pressing environmental problems These measures have been carried out extensively nationwide Nowadays, environmental impact assessments are a must and have become a standard and a tool to appraise investment projects from environmental and natural resource protection perspectives However, the prevention and minimization of environmental pollution, control of environmental degradation, and reduction in the intensity at which resources are used has recently not met expectations In addition to propaganda and education to increase community knowledge of the community on environmental protection, and the adoption and application of cleaner technology in production operations etc., Vietnam is studying the application of economic tools for use in environmental management Of these tools, taxes and environment-related charges are drawing the attention of policy makers, and economic entities, especially businesses Recently issued legal documents concerning tax and charges have incorporated provisions on the rights and obligations of organizations and individuals toward the environment from two aspects Firstly, provisions that provide guidelines to encourage and provide incentives for environmentally friendly behavior, preventive and treatment measures; secondly, provision on financial obligations of objects that involve actions of exploitation and use of the environment, and emission of polluted matters in order to partially compensate for the cost of the social welfare loss on the environment * Takuji Yano is Deputy Director, Mutual Assistance Insurance Division, Budget Bureau, Ministry of Finance, Japan ** Nguyen Van Phung is Deputy General Director at Tax Policy Department, Ministry of Finance, Vietnam This paper is written in the framework of the joint research project on tax policies between Policy Research Institute of Japanese Ministry of Finance and Vietnamese Ministry of Finance Issues addressed in this paper are the authors’ personal views, nothing reflecting official positions of Japanese Ministry of Finance and Vietnamese Ministry of Finance The authors wish to acknowledge their thanks for Japanese and Vietnamese researchers participated in the project and former and present staff of Office of International Research and Cooperation, Policy Research Institute, Japanese Ministry of Finance to help this project, especially to Mr Toshihiro Nakanishi and Mr Katsutoshi Sakaji 170 According to the proposal as part of tax system reform strategy with the year 2010 in mind, approved by the Prime Minister in the form of Decision No 201/2004/QD-TTg, dated December 06, 2004; the environmental protection tax law shall be promulgated in 2008 In addition to currently existing taxes relating to the use and exploitation of environmental resources and factors (land and natural resources), certain new taxes shall be studied and submitted for adoption at appropriate times Under the common title “Environmental Protection Tax”, they shall be issued initially in form of an Ordinance and target polluting objects, so as to generate financial revenue for environmental protection and ecology, and contribute to preventing the transfer of “dirty” technology into Vietnam Nevertheless, in order to implement effective taxes that satisfy the specified objectives and requirements, a number of tasks should be performed from the stage of study, the formulation of alternatives and outlines, submission for adoption, in accordance with the procedures of drafting legal documents, to the stage of preparing the necessary conditions for implementation Within the framework of the joint research project between VMOF and PRI of JMOF, part of the technical assistance content on policies involves studying, and proposing certain types of taxes and charges relating to environmental protection for adoption in the near future This paper explains some content and initial research results acquired by Vietnamese researchers, based on the key structure of the research subject agreed with Japanese researchers This paper has five parts Part One discusses the situation of applying taxes and charges relating to environmental protection in Vietnam, and some suggested recommendations for further consultation with Japanese researchers Part Two discusses the introduction of government measures related to the environment and introduces a policy mix approach This part intends to clarify that environment tax is one of the policy options and careful note must be taken of existing environment regulations Part Three discusses the most basic theoretical contents of environment-related tax and narrates practical issues drawn from relevant literature Part Four describes the experience of applying environment taxes in several developed countries and summarizes the current intermediate discussion of environment-related taxes in Japan Part Five offers some hints for further improvements during the implementation process of introducing environment-related taxes in Vietnam This part suggests some milestones which are shown relative to current problems and the discussion in Part One Current Situation of Environment-Related Taxes in Vietnam Before considering the current situation of environment-related taxes in Vietnam, we must make reference here to legal regulations on the environment and its protection, and those in other areas relating to the environment Subsequently, the main details of current policies on environment related taxes and fees will be presented 2.1 Concept of Environment and Legal Framework on the Environment in Vietnam The term ‘environment’ is a wide ranging concept with different definitions concerning different fields For example, natural environment, social environment, business environment, legal environment… Generally, the concept of environment implies both social and natural elements; however, that used in this context is closer to nature than society, and alongside current legal regulations on the environment Chapter VI Environment-Related Taxes in Vietnam 171 The Environmental Protection law in Vietnam was approved by the National Assembly IX in the 4th Section on 27 December 1993 and came into force from January 2004, onwards According to this Law, the environment consists of both natural and artificial material elements, closely related to each other, around humans, and affecting the living, production, existence and development of nature and human beings alike The environment comprises multiple elements, including air, land, sound, light, underground, mountains, forests, rivers, lakes, the sea, creatures, ecological systems, living areas, production areas, natural preservation areas, natural views, landscapes, historical traces, and other material forms Vietnam intends to build a system of legal documents on environmental protection in parallel with laws on natural resources However, for historical reasons, a system of legal documents on natural resources was established earlier than one concerning legal documents on the environment Since the government pursued a reform policy, adhering to the spirit of the 6th General Congress’ Resolution of Communist Party (1986), social perceptions concerning natural resources and environmental values has radically changed Beside economic values, relating to rights over assets, natural resources are also objectives focused on by the State and society, reflecting their environment values (ecology values) Therefore, in recent years, Vietnam has had many legal documents on protecting and developing natural resources, such as the law on protecting and developing forest (1991), the law on land (1993, revised in 2003), the law on minerals, the law on oils and gases (1993, revised in 2000), the law on natural water resources (1998), the ordinance on protecting and developing aquatic resources (1989), Regarding the environment, legal documents also exist in other fields, such as the civil code, the criminal code, the law on enterprises, some tax laws, and the ordinance on fees and charges Because of the wide scope of the environment, there are many duplicate legal documents when the Environmental Protection law is compared to specific laws on environment elements In many cases, the regulations of this law usually quote other laws’ regulations on the same issue However, distinctive points in the system of legal documents on the environment might be abstracted as follows: - Specific laws (for example, the laws on land, on protecting and developing forest ) mainly deal with civil relations concerning the exploitation and use of environmental elements; regulate rights and responsibilities of organizations and individuals in protecting and developing environment elements; regulate measures to protect and prevent uneconomical use or exhausting/damaging environment elements Meanwhile, the Environmental Protection law regulates general rules in terms of public environmental administration, relations concerned with preserving the quality of environmental elements (for example, protecting the land’s ecological values, diversifying the biological system, ecological system, and the quality of water resources ) - Specific laws on non-renewable environmental elements (for example, those on oils and gases and minerals), not only have regulations adjusting the activities of exploitation and utilization, but also have those encouraging the development of exploiting and processing industries for economical profits Regulations on responsibilities to contribute financial obligations for objectives using environment elements, covering burdens on behavior resulting in pollution or environmental risks - The Environmental Protection law and the law on enterprises have common 172 regulations concerning enterprises’ responsibilities to abide by legal environmental requirements, with restrictions or prohibitions in certain industries or fields, where there is a risk of adverse effects on the environment (explosives, retroactive elements, highly toxic substances) and conditioned industries (environmental sanitary standards and foodstuff safety ) However, the law on enterprises abolished many kinds of licenses (including those environment related), transferring to a system of self-registration for enterprises with a post checking system Because no reasonable mechanism of post checking still exists despite the continuing inadequacy of the current investigative and checking mechanism, violations of legal environmental regulations have been on the increase, especially by enterprises This could be considered as one of the measures to compensate society for their acquired benefits and the costs born by the society 2.2 Environment-Related Taxes and Fees Policies The system of tax policies in Vietnam is designed and gradually accomplished through two phases, of which there are proposals to apply environmental taxes However, since many major issues remain unresolved during the restructuring period (including the tolerance capacity of the economy, the adaptability of enterprises, the collecting organization capacity ), it has been impossible to promptly promulgate laws on environment taxes Many also believe that in practice, the current taxation system in Vietnam also includes some taxes on the environment They are: (i) Taxes on using environment elements, as the natural resources tax, land use tax; (ii) Taxes and fees on petroleum and oils; and (iii) Environment related fees and charges regulated in the ordinance on fees and charges The argument behind this view is that these taxes and fees impose on organizations and individuals actually exploiting or using environment elements or engaging in activities that harm the environment This can be considered as one of the measures compensating for society, due to their benefits and social costs born by society 2.2.1 Land Use Taxes Vietnam imposes land use taxes through the Law on Agricultural Land Use Tax and the Land and Housing Tax Ordinance This means organizations and individuals having received land from the State for agricultural productive activities (cultivation, livestock, and fishery) are subject to the Agricultural Land Use Tax On the other hand, objectively received land for the purposes of building construction projects and housing is subject to the Land and Housing Tax When renting land from the State, they need not pay taxes but rental, based on signed contracts The contents and results of implementation of levying land use taxes are dealt with in the document concerning taxes on land use and assets In this paper, we focus on analyzing the environmental aspect of these taxes in order to clearly determine the scope and border between environmental and land use taxes First of all, although land is one of the environmental components, it is necessary to confirm that current land use taxes are not classifiable as environmental taxes because they not concern activities causing environmental pollution or harming the environment Besides, the main contents and policy stance of land use taxes are also needed to analyze the following: (i) the purpose of land use taxes is to encourage land use economically and effectively, and simultaneously, to ensure equity and reasonability in the contributions of organizations and individuals using land to the State Budget; (ii) Chapter VI Environment-Related Taxes in Vietnam 173 tax rates are levied in kg paddy in area units, in monetary terms based on the paddy price, which is based on the profitability of the use of the land (presented by land categories used for agricultural land use purposes) and the convenience in using the land, such as the land site and infrastructures (for the same land category, the level of land and housing tax is to 32 times higher than the level of agricultural land use tax); (iii) regulations concerning exemptions and reductions in land use taxes are applied in the cases of natural calamities, difficulties affecting living standards, and social policy objectives Recently, the National Assembly promulgated the Resolution on the exemption and reduction in land use taxes for the farmer’s agricultural land area, as well as the exemption of land use taxes for minorities in difficult remote communes With these issues in mind, it is clear that Vietnamese land use taxes are closer to income tax or asset tax than the environment tax 2.2.2 Natural Resource Taxes The Ordinance on natural resources tax was promulgated in 1990 and revised in 1998 by the National Assembly’s Standing Committee This Ordinance imposes tax on using or exploring natural resources, such as minerals, oils and gases, natural forest resources, natural marine products, natural water, and other natural resources Elements used to determine the tax payable are the amount of explored resources, the price of the same at the exploration site; and the tax rate at a certain percentage on the taxable price Tax rates are state regulated for each kind of natural resource, based on the following rule: Non-renewable or valuable natural resources would be taxed higher than renewable ones For example, tax rate of 40% is applied to natural forest resources; tax rate of 1% is applied to land used as raw materials The table of natural resources tax rates is in the Appendix The purposes of enacting the natural resources tax ordinance are: (i) to ensure budget revenue; to contribute to protecting, exploring and using natural resources economically, reasonably, and effectively; and, (iii) to contribute to protecting the environment The natural resources tax revenue and its percentage ratio of total budget revenues from taxes and fees are gradually increasing (see Appendix 2) However, looking at the structure, we see that over 90% of the natural resources tax revenue comes from oils and gases Many argue that, in accordance with the Constitution 1992, land and minerals, including territories under Vietnamese sovereignty, belong either to the people or the state Therefore, organizations and individuals permitted to explore natural resources have to pay charges to buy natural resources from the State This is the reason why other global countries apply systems of "Royalties on natural resources", rather than the natural resource tax system Many also say that, in accordance with the 1992 Constitution, land and minerals in the territories of Vietnam belong to the state or the people, meaning organizations and individuals permitted to explore natural resources have to pay charges to purchase natural resources from the State This is why many global countries introduce a policy of imposing "royalty of natural resources", rather than the natural resource tax 2.2.3 Petroleum and Oils’ Taxes and Fees Taxes and fees from petroleum and oils are relatively large revenue generators, for developing, as well as developed countries However, based on the assessments of IMF experts (June 2004), these revenues remain modest in Vietnam; and, this is considered as an unusual phenomenon Currently, taxes and fees from petroleum and oils in Vietnam include the import tariff (20%), special consumption tax (10%), VAT 174 (10%), and petroleum and oils’ fees1 (petroleum: 500 VND/liter, diesel: 300 VND/liter, others: not levied) Total taxes and fees from the above sources go into the Stage Budget, within which the revenues from petroleum and oils are used as one of the factors for allocating budget capital expenditure into transportation infrastructures As mentioned in section 2.2.2 above, taxes and fees on petroleum and oils in Vietnam are deemed to be indirect environment taxes (IETs) because they are included in the selling prices of petroleum and gases Therefore, their effects on the environment are not clear, although they have effects on the demand-supply relation and the reduction in consumption at the time of increasing prices The issue of environment pollution caused by the use of petroleum and oils (depending on factors as: total consumption amount, transportation means’ quality, fuel using proficiency, infrastructures ) has not been still adjusted through petroleum and oils’ taxes and fees This is one of the issues requiring further attention when designing future environment tax policy 2.2.4 Fees and Charges in the Environment Field The basic legal document to enact and implement regulations on fees and charges concerning the environment and environmental protection is the environmental protection law (2003) This law regulates that organizations and individuals using environment elements, if engaged in activities causing environment pollution or breakdown, must be responsible for contributing money to resolve the pollution and improve environment.2 Based on the article 34, Decree 175/CP dated November 18, 1994, regulating details and guiding the implementation of the environmental protection law, every organization and individual is responsible for contributing money to environmental protection activities when engaging in the following activities: (i) Exploration for oils, gases, and other natural resources; (ii) Airports, ports, automobiles, and railways stations; (iii) Motorcycles and other transportation means; and (iv), Participating in business activities causing pollution Financial contributions of organizations and individuals are made in the form of fees, charges or fines paid due to administrative breaches, dependent on the nature of their behaviors concerning the environment The initial point of petroleum and oils’ fees is the transportation fee Previously, Vietnam imposed road fees per transportation means, the fee level being dependent on the type of transportation, cylindrical capacity, or loading capacity, and annually; this was changed to a system of charging fees based on petroleum and oil prices However, after many projects constructing, revising and upgrading bridges and roads by using loans were accomplished, fees had to be charged to ensure sufficient funds to repay loans and finance operation and maintenance (O&M) costs for these projects The government permitted the project investors to charge fees on the means of transportation during each use At that time, imposing the transportation fee through petroleum and oil prices was thought to be unreasonable, as it was doubly imposed, and unequal, because these fuels are not only used in transportation but also for other purposes, such as electricity generators, and pump motors for irrigation Therefore, in the year 2000, the government promulgated Decree 78/2000 regulating petroleum and oils’ fees, and abolishing the transportation fee based on petroleum and oils’ prices Many believed that petroleum and oils’ fees should come under one type of environment tax, imposed on activities causing environment pollution by using petroleum and oils, but should be indirectly collected through petroleum and oils’ prices According to the program of revising the legal system, the National Assembly will ratify the Law of revising and supplementing the Environment Law Accordingly, the presence of economic instruments for restricting pollution, and protecting the environment mean investment for improving the environment would be more focused Chapter VI Environment-Related Taxes in Vietnam 175 The Ordinance on fees and charges, promulgated by the National Assembly’ Standing Committee on August 28, 2001, regulates the responsibility for paying environmental fees and charges including: (a) Fees and charges on issuing licenses, certificates for meeting or being eligible to environment standards for businesses involving environmental conditions, fees for making reports assessing environmental effects; and (b) Environmental protection fees for each field of businesses, of which items coming under category (a) are distinctly revenues covering the costs of public services providing the objectives needed to assess Revenues under group (b) are regulated in detail by Decree 57/2002/ND-CP, dated June 03, 2002, which guides the implementation of the Ordinance Then, there are the following environmental protection fees: - Environmental protection fee for waste water; - Environmental protection fee for petroleum, oils, waste gases from using coal and other fuels; - Environmental protection fee for solid waste; - Environmental protection fee for noise pollution; - Environmental protection fee for airports, stations, and ports; - Environmental protection fee for exploring for oils, gases, and other minerals However, to date, the government has only established regulations on levying two items of environmental protection fees for petroleum and oils (petroleum and oils’ fee) and an environmental protection fee for waste water respectively.3 The remaining fees are still under study and the necessary conditions are being prepared to enact and implement them, following the program involving building legal state documents As presented in section 2.2.2 above, the revenue from the environment protection fee for petroleum and oils may be considered as IETs tax, although it is not only used for environmental purposes With an average revenue amount within the period 2000-2003 of VND 2,750 billion, the petroleum and oils fee generates a considerable proportion of the total revenues from taxes and fees (approx 2.5%) For the environment fee for waste water, provinces have currently been regulating detailed levels for living waste water, and implementing assessments of the reported and calculated results on the concentration and number of waste from enterprises in order to determine the monthly payable amount of fees Although still without detailed results concerning this revenue, some remarks can be made on this fee as follows: - First, the objective to bear the fee and the element used to determine the fee amount are the regulatory poisons/toxics in the waste water (currently, only kinds of main poisons/ toxics, as stated in Appendix 3) This indicates that the environment fee for waste water in Vietnam is similarly one type of Pigouvian tax; meaning there would be many difficulties in the process of implementation, although the level of fee determined during this period remains quite low - Fee levels are separated between living and industrial waste water, due to the consideration of costs incurred by the collection organization and the feasibility of the implementation process, because it is impossible to measure and to determine the poisons/toxics in the living waste water of each household Hence, equity need not The petroleum and oils fee is regulated in Decree 78/2000/N§-CP, dated December 26, 2000, while the environment fee for waste water is regulated in Decree 67/2003/N§-CP dated June 13, 2003, and effective from the year 2004 In the 4th quarter of 2005, the government plans to introduce the Decree on the environment protection fee for exploring minerals 176 necessarily be taken into consideration, at least for the initial few years of implementation, with the main purpose to create a fee paying custom for enterprises and people - The collected money, after deducting the costs of the fee collecting organization, would be collected in the environmental protection fund (at both central and local levels, 50% for each) to be used exclusively for environmental protection activities: processing and remedying pollution, improving the environment, investing in projects protecting the environment by improving the drainage system, waste water processing system,… For other environmental protection fees, this rule would also be applied It could be said that establishing regulations on collecting environmental protection fees represents a transitional stage to make a cornerstone for applying environment taxes in future, because they have various effects on enterprises’ production and businesses, which used to operate in the centrally planned mechanism unfamiliar with the payment of environmental costs Presently, it would be advisable to test under the form of each environmental protection fee in order to ensure it is familiar to enterprises; and also, in that way, administration agencies may also have good experiences in the process of implementation to design the environment tax in future 2.2.5 Other Environmental Taxes In addition to the above environment taxes and fees, the Vietnamese government has already grafted environment purposes into other taxes in the system, briefly as follows: - Import tax: although not regulated in the law on export, import duties, goods that burden the environment are also considered in the table of import tariffs Besides, other administrative or trade restrictive measures are also laid out to implement the purposes of preventing pollution and protecting the environment; for example: prohibiting imports of certain used machinery and equipment, constraints on technical standards and the rule of origin for certain imported goods - Enterprise income tax: the government encourages enterprises to focus on the environmental purpose, which is regulated under enterprise income tax law in two aspects Firstly, enterprises are permitted to deduct all costs concerning investment made to prevent and remedy environmental pollution; machinery and equipment used in the process of processing waste water are classified into groups of fixed assets entitled to be classed as having fast depreciation mechanisms Secondly, preferential treatment for enterprise income tax is proposed to encourage enterprises to enhance investment on upgrading machinery and equipment in order to reduce pollution; and to encourage enterprises to move to industrial parks from living areas - Land-related policies are also promulgated to encourage reductions in environment pollution at urban and residential areas In particular, money received from transferring land use rights related to the sale of assets located in the land of state owned enterprises is given in totality to enterprises if these activities involve moving production units from urban or residential areas in line of approved plans, instead of being going into the state budget 202 This small essay is not a detailed discussion based on a scientific background; hence no quantitative analysis could be shown However, the essences of theory framework and experiences of developed countries mean some suggestions on the Vietnamese trajectory for tax reform can be made There are several comments rather than concluding remarks, reflecting discussion from an intensive seminar with VMOF in June 2005 and closing seminar of the project on November 2005 Firstly, discussion concerning environment-related taxes should be consistent with the total tax scheme in Vietnam For example, VAT reduction on environmental goods should be carefully discussed to avoid conflicting with a more simplified VAT system as this tax reform pointed out CIT exemption could not be discussed in this context, either Although ”greening” has recently become a very important concept, the three basic tax principles (neutrality, simplicity, fairness) are more important when persuading taxpayers Secondly, the Prime Minister Decision discusses Environmental Tax designed for a special purpose tax, however, from the perspective of the Ministry of Finance as the budget planner, this revenue should be pumped into the General Budget Special Account creation often harms the efficiency of budget management, and tax reform may lead to difficulty when Vietnam needs more advanced tax reform after 20-30 years However, political discussion may be needed to handle this issue Thirdly, oil-related taxes will remain a core issue after WTO participation, within the context of the tax reform project until 2010 Natural resource tax and SCT will be useful tax items to assuage this concern The authority could redesign these tax items to catch up with the “greening” tax system to help facilitate understanding from future taxpayers Fourthly, land-related taxes will be a great tool for implementing greening tax reform Environmental concern may be one of the good reasons for launching land-related taxes and this tax item could help preserve a better environment for local society Lastly, the Finance Minister’s Decision describes how environmental-related taxes will be introduced in Vietnam before fiscal year 2008 The greening tax system will enhance its sustainable economic growth, because the greening context will help promote innovation in enterprises If the greening context could be achieved, the Vietnamese tax system would stand out as one of the advanced social systems in the world Table 4-1: Environment-Related Taxes in EU Countries Norway Denmark Sweden 1990 ○Introduction of carbon tax - Introduction of taxation according to the inclusion volume of carbon 1994 - Amendment of taxation according to the inclusion volume of carbon and energy consumption volume 1997 - Re-amendment of taxation according to the inclusion volume of carbon 1991 ○Introduction of carbon tax - Addition of carbon tax to existing fuel tax 1992 - Enlargement of taxable items to coal and etc 1991 ○Introduction of carbon tax - Introduction of taxation according to inclusion volume of carbon together with decrease in tax rate of fuel tax 1992 ○Introduction of carbon tax - Introduction of taxation according to the inclusion volume of carbon together with a decrease in the tax rate of fuel tax U.K 1993∼99 ○Increase in tax rate of hydro-carbon tax - Increase in tax rate faster than the rate of consumer price index (Escalator system) 2001 ○Introduction of climate fluctuation tax - Enlargement of taxable items to cover the commercial use of electricity, coal and gas Germany 1999 ○Increase in tax rate of mineral oil, introduction of electricity tax - Step by step increase in tax rate for both taxes during years from 2000 France 1999 - Introduction of contamination activities general tax 2000 - Void by unconstitutional judgment of policy to enlarge taxable activities in contamination activities general tax to medium consumption of energy Holland 1988 - Introduction of general fuel surcharge (Integration of existing surcharges utilized for environment related expenditure) 1990 - Amendment of general fuel surcharge to be taxed according to the inclusion volume of carbon together with decrease in its tax rate 1992 ○Introduction of general Italy fuel tax 1999 - Amendment of taxation Amendment of goods according to the inclusion exercise volume of carbon and - Amendment of tax rate of energy consumption volume mineral oil in goods 1996 exercise to cover the ○Introduction of fuel inclusion volume of carbon, restriction tax step by step increase in its - Introduction of additional tax rate up to 2005 taxation to small-sized energy consumption like - Enlargement of taxable households items to coal and etc Chapter VI Environment-Related Taxes in Vietnam Finland 203 204 Table 4-2-1: Breakdown for Each Stage of Imposing Environment-Related Tax Taxable items (examples) Taxable in most upstream Taxable in importing and/or mining of such fossil fuels Coal, Crude oil, Imported petroleum products, Liquefied natural gas Tax base (examples) Off-take amount from bonded warehouses, Mined amount from oil/gas field Taxpayers (examples) Off-taker from bounded warehouses, Concessionaire Existing taxes on fossil fuels (examples) Petroleum and coal tax (National) Taxable in upstream Taxable in taking off from its plant of such fossil fuels Coal, Petroleum products (Gasoline, Heavy oil, Diesel oil and etc.), City gas -Coal: Same as those of most upstream -Petroleum products and City gas: Off-take amount from its plant -Coal: Same as those of most upstream -Petroleum products and City gas: Plant owner Gasoline exercise (National) Taxable in downstream Taxable in supplying consumers of such fossil fuels Coal, Petroleum products (Gasoline, Heavy oil, Diesel oil and etc.), City gas Consumption amount (or sold amount to consumers) of coal, petroleum products, city gas Consumers (or sellers to consumers) of coal, petroleum products, city gas Petroleum and coal tax (National) Aviation fuel tax (National) Light oil delivery tax (Local, to be taxable on its delivery) Table 4-2-2: Taxable Stage of Imposing Environment-Related Tax Effect of price incentives of taxation Possibility of - Possible to make effective tax administration due tax to the relatively small number of taxpayers and administration appropriation of existing tax systems Taxable in downstream - No problem in terms of the transfer of tax in case of self-assessment by consumers of fossil fuels - Possible to show tax amount on seller's receipts in order to realize burden to tax, in the case of the sellers of fossil fuels being taxpayers - Possible to alter the system design to ease taxation so that those in the downstream or discharge stages shall be exempted or refunded - Also, possible to alter the system design to exempt or refund for a specific purpose if possibly specifying such specific purpose at the time of taxation or afterwards - Necessary to structure a new system because of the lack of an appropriate existing system and also the large number of taxpayers - Likely to be problems concerning mis-administration due to the large number of taxation place Chapter VI Environment-Related Taxes in Vietnam Evaluation Exemption or refund criteria Taxable in most upstream or upstream - Necessary to transfer tax amount from most upstream and/or upstream to consumers of fossil fuels - In order to realize the tax burden, possible to show the tax amount of fossil fuels on seller's receipts - on system design, Difficult to exempt or refund tax amount collected in most upstream or upstream to consumers of fossil fuels, who is the discharger of greenhouse gas, in the downstream or discharge stages → in such cases, considerably eased taxation for those who are in the downstream or discharge stage shall be eased taxation by subsidy or etc - Also, possible for system design to exempt or refund as a specific purpose if possibly specifying such specific purpose at taxation or afterwards, While administratively complicated in case of a plural supply chain hierarchy 205 206 Table 4-4: Application for Revenues in EU Countries Country Application for Revenues Finland General-account budget (using the source of income tax cuts); Sweden General-account budget (using the source of income tax cuts); Demark General-account budget (Revenues from Household are used to tax-cut for SCT Revenues from industrial sector are used to refund the same) General Fuel Tax - General-account budget Energy Regulation Tax-refund for the tax objective sector via budgetary or special tax measures based on each tax amount 90% of revenues are used to reduce the social security burden for employers and employees, or are otherwise used for environment-related policy General-account budget (using the source of income tax cuts); Holland Germany Finland Italy U.K General-account budget (Subsidies for R&D to increase energy efficiency, and reduction in social security costs) 80% of revenues are used to cut 0.3% of the social security cost of employers Special subsidy and enhancement of the tax credit system for capital allowance Chapter VI Environment-Related Taxes in Vietnam 207 Table 5-4-1: Existing Energy-Related Taxes in Japan Tax item Tax Subject Tax Objective Gasoline Exercise Local Road Tax Petroleum Gas Tax Nation Gasoline Nation LPG for Automobiles Light Oil Deliver Tax Aviation Fuel Tax Local Petroleum Gas Nation Aviation Oil Petroleum and Coal Tax Nation Nation Crude Oil, Petrochemical Product Import LPG Domestic Natural Gas, Import LNG Coal Promotion of Power Resources Development Tax Nation Sales Electric Power by General Electric Power Tax Rate 48,600 JPY/kl 5,200 JPY/kl 17.5 JPY/Kg Tax Revenue (FY 2004) JPY 2,836 bln JPY 303 bln JPY 28 bln 32,100 JPY/kl 26,000 JPY/kl JPY 1,075 bln JPY 106 bln 2,040 JPY/kl JPY 477 bln 800 JPY/t 840 JPY/t 230 JPY/t 425JPY / 1000kwh JPY 359 bln Purpose of Expenditure Road maintenance and improvement (National Budget) Road maintenance and improvement (Local Budget) Road maintenance and improvement - 50% for Local, 50% National Road maintenance and improvement (Local Budget) Airport maintenance and improvement-11/13 for Local, 2/13 National Oil strategy (examples: Oil development and state oil stockpiling), and improvement for energy supply-demand structure like new energy development-National Budget Electric power supply policy for location and transmission-National Budget 208 Table 5-4-2: Revenue and Expenditure Analysis for Existing Energy-Related Taxes in Japan Tax item Revenue Analysis Expenditure Analysis Gasoline Exercise, z Tax imposed under the z Road improvement and Local Road Tax, benefit principle that drivers construction (earmarked Petroleum Gas Tax, pay the costs of road account) Light Oil Deliver improvement and z JPY 600million is defined as Tax construction the budget for z Not designed as a concept environment-related measures whereby carbon emission is (FY 2004) the tax base Aviation Fuel Tax z Tax imposed under the z Airport improvement benefit principle that airport (earmarked account) users should pay the cost of z JPY 10 million is defined as airport improvement and the budget for construction environment-related measures z Not designed as a concept (FY 2004) whereby carbon emission is the tax base Petroleum and Coal z Tax imposed under the z Earmarked account for energy Tax benefit principle that energy policy users pay the cost of energy z JPY 1.8 bln is defined as the policy budget for z The tax rate has some sense environment-related measures of a carbon tax, but is not (FY 2004) proportional to the JPY 1.25 million is for containment amount of anti-warming purposes carbon Promotion of z Tax imposed under the z Earmarked account for the Power Resources benefit principle that energy promotion of power resources Development Tax users pay the cost of energy development policy z JPY 3.2 bln is defined as the z Not designed as a concept budget for whereby carbon emission is environment-related measures the tax base (FY 2004) Some portion is used for new-energy development Anti-warming Tax z Tax imposed under the z Followings are the candidate -Carbon tax polluter pays principle (PPP) of budget purpose-1) Special whereby polluters are asked Account for Anti-warming to fairly and equally bear policy, 2) General Account their economic costs budget, 3) Hybrid measure for z Tax rate is proportional to the 1) and 2) emission amount of CO2 contained in fuel Chapter VI Environment-Related Taxes in Vietnam 209 Table 5-4-3: Comparison of the Characteristics of Taxes and Charges Tax Charge Process Strict legislative process, not easily changed Approval authority National People's Congress, Ministry of Finance Collection Agent Targets Taxation department or delegated representatives General Revenue use Goes to the general budget Relationship with national economic development Increases with national economic development and income levels Administrative process, easier to adjust State Development Planning Commission and provincial governments Various, but usually not the tax department Specific targets or groups Largely used for special purposes Static nature, less related to national economic development 210 Appendix 1: Table of Natural Resources Tax Rates Implementing the Revised Ordinance on Natural Resources Tax Accompanied by Decree 68/1998/N§-CP dated September 03, 1998 of the Government I II III IV V Group/categories Metal minerals Ferrous metal minerals (iron, manganese, titan ) Non-ferrous metal minerals - Mineral sand gold - gold nuggets - Rare lands - Platinum, tin, wolfram, silver, antifoam - Lead, zinc, alumina, copper, nickel, cobban, monlipden, mercury, magnetic, vanadi… - Others Non-metal minerals (excluding natural hot springs regulated in group 7) Non-metal minerals used to make normal construction materials - Exploited land for labeling and building projects - Non-metal minerals used to make other normal construction materials (stone, sand, brick land ) Non-metal minerals used to make high quality construction materials (granite, dolomite, fire-proof land, quizzed ) Non-metal minerals used in industrial production (pyrite, apatite, phosphorite, kaolin, mica, technical crystal, lime and cement stones, glassware sands ) Coal: - Mine anthracites - Open-cast anthracites - Brown coal, fat coal - Other coals Precious stones: a Diamond, ruby, alexandrite, black precious opal b Adit, rhodolite, pyrope, burin, spinet, topaz, crystals, nephrite… c Other precious stones Other non-metal minerals Oils (1) Gases (2) Natural forest products Raw woods: - Category I - Category II - Categories III, IV - Categories V, VI, VII, VIII Mine- pillar woods Woods used to make paper materials Foremast pillar woods Soaked woods Branches, firewood Bamboos Tax rate (%) 2 2 3 40 35 25 15 15 20 20 25 10 Chapter VI VI VII VIII Environment-Related Taxes in Vietnam 211 Group/categories Medical materials: - Aloe wood, condonopsis, aloe - Anise, cinnamon tree, amomum, cardamom - Other medical materials Other natural forest products - Forest birds and animals (exploitable kinds) - Other natural forest products Natural aquatic products - Pearl, abalone, holothurian - Shrimp, fish, cuttlefish, other aquatic products Natural water Natural mineral water, bottled and caned natural water Natural water used to generate electricity Natural water exploited to serve productive industries (beside points and 2): a Used to make main or subordinate materials for material elements in production b Used to serve production (industrial sanitary, freeze…) c Natural water used to produce clean water, serve agricultural production, Natural water exploited from wells for living Natural water exploited to used in other purposes beside 1, and Other natural resources - Bird nets - Other natural resources Tax rate (%) 25 10 20 10 0 20 10 (1) (2): Tax rates for petroleum and oils are based on the Law on Oils and Gases and the Decree 84/CP dated February 17, 1996 Then, tax rates for raw oils are regulated from 6% to 25%, dependent on the exploited amount and the depth of each oil well 212 Appendix 2: Environment and Natural Resources Related Revenues in Vietnam Unit: Billion VND Indicator Total taxes and fees revenues Land and housing tax 1999 2000 2001 2002 2003 2004 74,444 86,867 99,048 113,510 138,881 146,889 342 366 300 300 367 314 Natural resources tax 4,552 7,487 7,558 6,780 10,649 8,627 Agricultural land use tax 1,973 1,776 700 520 151 61 Fees on petroleum and oils - 2,192 2,537 2920 3,350 3,865 Natural resources taxes/ total taxes and fees revenues Fees on petroleum and oils/ total taxes and fees revenues 6.11% 8.61% 7.66% 5.97% 7.66% 5.87% - 2.52% 2.56% 2.57% 2.41% 2.63% Chapter VI Environment-Related Taxes in Vietnam 213 Appendix 3: Levels of Environmental Protection Fees for Industrial Waste Water Pollutants in waste water Name Biological oxidization requirements Chemical oxidization requirements Pendent solid substances Mercury Lead Arsenic Cadmium Sign ABOD ACOD ATSS AHg APb AAs ACd Level of fee (VND/kg) Minimum Maximum 100 300 100 300 200 400 10.000.000 20.000.000 300.000 500.000 600.000 1.000.000 600.000 1.000.000 214 References: Baumol and Oates (1971), “The Use of Standards and Prices for Protection of the Environment”, Swedish Journal of Economics, LXXIII, pp 42-54 Baumol and Oates (1988), “The Theory and Environmental Policy”, 2nd Ed (Cambridge University Press, England) Montgomery (1972), “Market in Licenses and Efficient Pollution Control Programs”, Journal of Economic Theory.5, pp 395-418 OECD (1975), The Polluter Pays Principle: Definition, Analysis, Implementation Bohm and Russel (1985), “Comparative Analysis of Alternative Policy Instruments”, Handbook of natural Resource and Energy Economics, vol.1, North-Holland, pp 395-460 Kolstad (2000), Environmental Economics, Oxford Press OECD (1994), The Distribute Effects of Economic Instruments for Environmental Policy OECD (2001a), Environmentally Related Taxes in OECD Countries OECD (2001b), Consumption Tax Trends VAT/GST, Excise and Environmental Taxes OECD (1996), Implementation Strategies for Environmental Taxes Wietzman (1974), ”Prices vs Quantities”, Review of Economic Studies, 41, pp.477-491 Roberts and Spence (1976), “Effluent Charges and Licenses under Uncertainty”, Journal of Public Economics.5, pp 193-208 Pearce and Turner (1990), “Economics of Natural Resources and the Environment”, (Johns Hopkins University Press, Baltimore) Morotomi (2000), “Theories and Practice of Environment Taxes”, Japanese Edition, Yuhikaku, Tokyo Bohi and Butraw (1991), “Avoiding Regulatory Gridlock in the Acid Rain Program”, Journal of Policy Analysis and Management, 10(4), pp 676-684 Bohi and Butraw (1992), “Utilities Investment Behavior and the Emissions Trading Market”, Resources and Energy Economics, 14, pp 129-153 Hahn and May (1994), ”The Behavior of the Allowance Market: Theory and Evidence”, The Electricity Journal, 7(2), pp 28-37 Kete (1992), “ The US Acid Rain Control Allowance Trading System”, OECD, Climate Change: Designing A Tradable Permit System, pp78-108 Chapter VI Environment-Related Taxes in Vietnam 215 Andersen (1994), Governance by Green Taxes, Manchester University Press OECD (1997), Environmental Taxes-Recent Developments in China and OECD Countries Oka (1997), “Economic Theory for Environmental Policy Measures”, Japanese Edition, Nihon-Hyoronsya, pp 15-32 Bressers (1995), “The Impact of Effluent Charges: A Dutch Success Story”, Jamicke Ed Successful Environmental Policy, pp 27-42 216 [...]... organizes supporting factors introducing environment- related taxes in the context of economic and tax reform, while constrained by many legal and institutional obstacles Chapter VI Environment- Related Taxes in Vietnam 201 5.11.2.1 Supporting Factors Firstly, the worsening trend in pollution in Vietnam has increased public environmental awareness This trend has prompted increased concern about environmental... Pigouvian taxes or indirect environment targeted taxes These taxes can reduce environmental problems by changing the relative prices of activities, thus discouraging various activities that cause environmental damage The third category is taxes that have unintended environmental implications (favorable or unfavorable) These taxes, such as income taxes, which have incentives encouraging certain forms... of the Government Decrees on environmental protection fees, promulgating the ordinance on environmental protection taxes, including taxes imposing on objectives causing environment pollutions They include all activities of production and businesses causing environment pollution within permitted levels, as regulated in the Vietnamese environment standards Tax rates would be calculated as a percentage... comparison between existing energy-related taxes and anti-warming tax in the context of revenues and expenditures in Japan Existing energy-related taxes in Japan are designed based on the “benefit principle” In other words, these taxes are not imposed in proportion to the carbon content contained in fuels The second point does not cover all objectives related to anti-warming, allocating an account for special... are likely to be ineffective if there is macroeconomic instability Setting a specific environmental tax is a wasted effort when inflation rates are high Thus, the fine tuning of environmental taxes, as discussed in industrial countries, may not be appropriate in all countries Environmental taxes may not have the desired incentive effects of modifying production methods that reduce environmental damage... the situation in Vietnam, oil related taxes make up a high proportion of total tax revenue Now, we would like to introduce the current oil-related tax system in China in order to make comparison with that in Vietnam In China, consumption tax was introduced as part of 1994 tax reform to influence consumption patterns, and restrain luxury goods consumption With petrol and diesel oil in mind, the scheme... travel at certain times (Baumol & Oates 1989, pp 192) 4.2.3 Indirect Environmental Taxes With regard to practical difficulties in imposing Pigouvian taxes, we can employ other taxes to achieve environmental objectives These taxes - called indirect environmental taxes - are levied on the use of productive inputs or consumption goods, where the use of those goods is related to emissions causing environmental... framework in explaining existing environment policy Therefore, the distribution problem must be discussed in the policy mix approach to set feasible and desirable environmental policy 4 General Theoretical Issues on Environment Taxes The introduction of environment- related taxes seems to climbing in many global nations, especially developed nations The general trend in recent times shows that environment related... launching land-related taxes and this tax item could help preserve a better environment for local society Lastly, the Finance Minister’s Decision describes how environmental-related taxes will be introduced in Vietnam before fiscal year 2008 The greening tax system will enhance its sustainable economic growth, because the greening context will help promote innovation in enterprises If the greening context... gasoline taxes are imposed on motor vehicles in order to generate the required revenue to cover the cost of protecting the environment This part discusses the following key points in detail: (i) The rationale to impose environment tax; (ii) Narration of the types of environment taxes; (iii) Considerations of the design of environment related taxes 4.1 Environmental Protection Objective According to