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FOREIGN TRADE UNIVERSITY HO CHI MINH CITY CAMPUS MID-TERM REPORT Subject: Taxation and Vietnam’s Tax System FUNDAMENTALS AND PRACTICE OF VIETNAM’S LAW ON ENVIRONMENTAL PROTECTION TAX Class: ML 157 Group: 12 Student’s name Phan Thị Trúc Mai Trương Quỳnh Mai Nguyễn Thị Thanh Minh Lê Hoài Thảo My Lecturer: Tran Nguyen Chat Student ID 1701015462 1701015463 1701015475 1701015480 Ho Chi Minh City, October 2019 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENTS LECTURER’S REMARKS i LIST OF TABLES AND FIGURES iii Abstract 1 Fundamental of environmental protection tax in Vietnam 1.1 Adjusting scope 1.2 Objectives 1.2.1 Taxable subject 1.2.2 Non-taxable subject 1.2.3 Taxpayers 1.3 Tax base 1.4 Tax calculation method 1.5 Tax declaration, tax calculation and tax refund Impact of Environmental Protection Tax 2.1 Economy 2.1.1 Demand side (Tax collector) 2.1.2 Supply side (Taxpayers) 14 2.2 Environment 15 2.2.1 Exploitation of Mineral Resources 16 2.2.2 Extraction of Fossil Fuels 17 2.3 Society 18 2.3.1 Consumption of Environmentally Friendly Alternatives 18 2.3.2 Awareness and Action 19 Applications in practice 21 3.1 Practical situation 21 3.2 Case study 24 3.3 Discussion 26 Conclusion 28 References 29 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com i LECTURER’S REMARKS Signature LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com iii LIST OF TABLES AND FIGURES No Content Page Table 1.1: Environmental protection tax schedule Table 2.1: Effects of Environmental Protection Tax Hikes 10 Table 2.2: Change in quantity of nylon in Ho Chi Minh 19 city in 2014 and 2017 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Abstract Environmental challenges are increasing the pressure on governments to find ways to reduce environmental damage while minimizing harm to economic growth Governments have a range of tools at their disposal, including regulations, information programs, innovation policies, environmental subsidies and environmental taxes Taxes in particular are a key part of this toolkit Environmental taxes have many important advantages, such as environmental effectiveness, economic efficiency, the ability to raise public revenue, and transparency Also, environmental taxes have been successfully used to address a wide range of issues including waste disposal, water pollution and air emissions Regardless of the policy area, the design of environmental taxes and political economy considerations in their implementation are crucial determinants of their overall success However, the development of environmental protection tax system and law enforcement still face many difficulties The purpose of this paper is to analyze the strengths and weaknesses of the tax system as well as tax calculation method The report on the environmental protection tax system is within the legal system of Vietnam and some laws from countries around the world for comparison purposes The structure of the research is divided into three main parts: the first section presents the basic contents of the environmental protection tax law in the Vietnamese legal system; The second part presents the impact of environmental protection tax on other aspects such as economy, society and politics; The final section clarifies the steps for calculating environmental protection taxes in practice, thereby pointing out the inadequacies and discussions on this issue Due to the limitation of preparation time and reference materials, the report could not avoid the shortcomings, writers expect the lecturers and readers to comment to make the report more complete LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Fundamental of environmental protection tax in Vietnam 1.1 Adjusting scope According to environmental protection law no 57/2010/QH12, the law provides for taxable subject, un-taxable subject, taxpayers, tax base, tax declaration, tax calculation, tax payment and environmental protection tax refund 1.2 Objectives 1.2.1 Taxable subject There are groups of taxable subjects which is specified by government a) Gasoline, oil, grease, including: gasoline, except ethanol; aircraft fuel; diesel oil; petroleum; fuel oil; lubricants; grease b) Coal, including: lignite; anthracite Coal (anthracite); fat coal; other coal c) Hydrogen-chlorofluorocarbon liquid (HCFC) d) Taxable-plastic bag c) Herbicide which is restricted from use d) Pesticide which is restricted from use e) Forest product preservative which is restricted from use f) Warehouse disinfectant which is restricted from use g) When it is necessary to supplement other taxable objects as per period, the National Assembly Standing Committee shall consider and regulate LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 16 2.2.1 Exploitation of Mineral Resources For many years, Vietnamese entertained an illusion about the country’s rich natural resources, believing that they have “gold forests and silver seas” Only recently, have Vietnamese changed their mind Nguyen Thanh Son, former director of the management board of the Coal Projects in Red River Delta, said Vietnam not only needs to strive to reduce its reliance on natural resources, but also needs to reduce exploitation as soon as possible With its huge reserves, Vietnam is the third largest mineral producer in the Southeast Asian region In fact, over the past two decades, many types of Viet Nam’s minerals have been mined significantly and are at risk of depletion Statistics from the General Statistics Office of Vietnam (GSO) showed that the mining industry has posted a record slump since 2011, with the growth rate dropping by 7.1% in 2017 and 4% in 2016 This could also lead to an alarming conclusion – the mining industry will be unable to return to growth, and so the growth pattern must be transformed The GSO attributed the slump to the plummet in crude oil and coal exploitation This consequence is directly related to Vietnam’s past development strategy, when the mining industry still occupied an important position Previously, at the initial stage of development, the extraction of natural resources such as oil, coal and minerals played a central role in the economy However, the proportion of the mining industry still accounting for about 10% of GDP is too large, in the context of increasing difficulties in exploitation and fluctuations of price and supply-demand in the global market LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 17 2.2.2 Extraction of Fossil Fuels In terms of petroleum business field, the environmental tax increased by 1,000 VND/liter from 01/01/2019 According to Production and business results in 2018 of PVOIL, because of all that, customers only buy enough essential needs to reduce inventory, causing a decline in business output of PVOIL in November and December, affect PVOIL’s completion of the 5-month production plan and the whole 2018 plan In accordance with the requirements of the Government, PVOIL has successfully replace RON 92 gasoline with E5 RON 92 (commonly E5 bio-fuel) gasoline from the beginning of 2018 Since petroleum diesel and gasoline consist of blends of hundreds of different chemicals of varying hydrocarbon chains, many of these are hazardous and toxic They include volatile compounds such as benzene, toluene and xylene that are identified as responsible for the health hazards and pollution associated with the combustion of petroleum-based fuels The process to produce E5 bio-fuel include main components: biodiesel (diesel alternative), biogasoline and biogas (fermentation of carbohydrates from various feedstocks, such as corn, sugar cane, wood) The combustion of fossil fuels such as coal, oil and natural gas has been identified as a major cause of the increase in the concentration of carbon dioxide in the earth’s atmosphere Carbon dioxide and other so-called greenhouse gases allow solar energy to enter the earth’s atmosphere but reduce the amount of energy that can be radiated back into space, thus trapping energy and causing global warming The environmental benefit of replacing fossil fuels with biomass-based fuels is that the energy obtained from biomass does not add to the level of carbon dioxide in the atmosphere that causes global warming LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 18 In conclusion, that the exploitation of mineral resources and extraction of fossil fuels are both at lower level will gradually contribute to environmental improvement 2.3 Society 2.3.1 Consumption of Environmentally Friendly Alternatives Applying the EPT could change people’s consumption behaviour For example, to prompt them to use environmentally-friendly goods; or to levy heavy taxes on nylon or hydrochlorofluorocarbons (HCFC) and others The increase in EPT would have an effect on the transport industry However, the government hopes that the tax hike can help increase the use of environmentally friendly products, such as E5 bio-fuel Deputy Minister of Industry and Trade (MOIT) Do Thang Hai said that according to the roadmap outlined by the Government, E5 bio-fuel has been sold nationwide instead of RON92 petrol since January 1, 2018, in a bid to protect the environment In 2017, the E5 bio-fuel accounts for only 9% of the total petroleum consumption in domestic market Additionally, several enterprises have claimed that the consumption of E5 has not been as high as RON92 and recommended that the sale of E5 was suspended For instance, in the first months of 2018, Ho Chi Minh City One Member Limited Liability Oil and Gas Company (Saigon Petro) said that the consumption of E5 accounted for less than 30% of its total petrol consumption, while the consumption of RON92 accounted for over 65% However, after the first months in 2018, the figure was more positive According to the reports of petrol companies, during months in 2018 (March and April), the volume that E5 was sold accounted for about 42% of the total types of petrol distributed in the LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 19 market Compared with 2017, E5 bio-fuel domestic consumption has increased sharply by nearly 33% Several petrol companies have posted large consumption of E5, including Thien Minh Duc Petro with an increase of more than 70%; Military Petroleum Corporation, up 64.3%; and Petrolimex, up over 48% According to economists, bringing new kinds of commodities to market requires a relatively long period of time to control the market Because E5 bio-fuel has been put into service for more than year, the figures cannot reflect the situation adequately Requiring this new product to completely replace an old product which had been sold in the market for several decades is impossible 2.3.2 Awareness and Action Law on Environmental Protection Tax aims to raise public awareness about environmental protection, besides create more revenues to fund environmental protection activities Action must follow awareness Understanding awareness of pollution and support for environmental protection from the general public is essential for informing governmental approaches to dealing with this problem Take the example of imposing EPT on nylon in Ho Chi Minh City: Table Change in quantity of nylon in Ho Chi Minh city in 2014 and 2017 (Unit: Quantity of nylon Quantity of nylon Quantity of nylon tons/year) produced imposed EPT imported 2014 23,000 746 63,8 2017 33,400 577 220 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 20 The rate of quantity of nylon imposed per quantity of nylon produced in 2014 and 2017 was 3.24% and 1.73%, respectively While the quantity was higher over years, there was a drop in this rate This proved the lack of awareness and action In summary, taxpayers need to raise self-awareness about current situation of surroundings’ pollution Besides, they have to make obligations to pay tax actively and on time LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 21 Applications in practice 3.1 Practical situation One of the main taxable objects of Environment Protection Tax are businesses (individuals and organizations), which also play an important part in leading environmental protection and the sustainable development of Vietnam Although the levels of pollution nowadays remain extremely high in the country, many businesses are unable to build more efficient and modern waste processing systems or are not environmentally responsible for society Processing of solid waste remains insufficient, water pollution at industrial parks is a major issue, and small businesses are not able to process their waste efficiently Nguyen The Chinh, rector at the Institute of Strategy and Policy on Natural Resources and Environment, said that the use of modern technology at companies was not as prevalent as in other developed countries, while production from industrial clusters and facilities contributes greatly to worse pollution The more and more serious environmental accidents have been occurring from industry to society Positively, Environment Protection Tax is considered as one of the economic tools that bring high efficiency in environmental management Because Environment Protection Tax is based on the principle that individuals or organizations using polluting products must pay taxes, the big producers of waste must try their best to find new methods to protect the environment and contribute to a green economy and sustainable development Before applying this tax, the selling price of goods and services did not include social costs, which is easy for individuals and businesses to make profit Nowadays, Environment Protection Tax increases the price of products and goods, which directly affects profitability, forcing businesses to raise environmental awareness, contributing to limiting production and consumption of polluting products More businesses, therefore, are becoming LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 22 environmentally friendly, with green products and green practices, such as a number of supermarkets now wrapping vegetables in banana leaves instead of using plastic bags In Vietnam, nine leading companies in FMCG and packaging industries (Coca Cola, FrieslandCampina, La Vie, Nestlé, NutiFood, Suntory PepsiCo, Tetra Pak, TH Group and URC Việt Nam) joined hands to launch the coalition Packaging Recycling Organization Vietnam (PRO) in HCM City on June 21, 2019 Some big brands such as Coca-Cola, Evian, Starbucks, McDonald's, have continuously taken actions to reduce plastic waste pollution in their own production and service processes Besides, Comfort, Sunlight, Love Beauty and Planet, big brands of Unilever Group, have changed into 100% recycled plastic, biodegradable bags instead of disposable plastic bags for product packaging; Lotte Mart use banana leaves and bagasse bags instead of disposable plastic bags; Saigon Co.op also stopped selling plastic straws at more than 600 large and small supermarkets in Vietnam and so on Recently, Nestlé Vietnam signed a commitment to achieve major goals including: completely recycling and reusing 100% of product packaging by 2025; 100% of the factory's waste is collected and sorted at source; 100% of factories not bury solid waste into the environment In addition, many companies have actively directed the organization to launch a movement to collect disposable plastic waste Being environmentally friendly helps businesses create a safe working environment, reduces costs related to their resource usage, and boosts their brand image and competitiveness However, the Environment Protection Tax in legal documents is quite general, which are very faint and difficult to implement and execute in reality Besides, the conflict in the regulation makes the application process much more difficult In some cases, the relatively big gap between the minimum and the maximum tax amount applied for a commodity leads to the possibility that the application will not be fair for businesses that LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 23 produce the same products but in other regions This has led to a number of cases where the subjects that were supposed to be taxed were not taxed, while in contrast the subjects that are not taxable were quite heavily taxed Therefore, although there are already guiding regulations on this tax issue, it does not seem to solve these existing problems Another example, recently, according to the latest draft resolution on Environment Protection Tax, the Ministry of Finance proposed increasing the amount of taxes with items including gasoline, oil Specifically, from July 1, 2018, the environment protection tax on gasoline will increase by 1,000 VND per liter from 3,000 VND to 4,000 VND per liter, in order to ensure the stability of the policy, in accordance with the roadmap to replace import taxes as international commitments and to avoid petrol smuggling In addition to gasoline, the Ministry of Finance also proposed increasing the environmental tax on diesel goods by 500 VND per liter; madut oil, lubricant and grease are also recommended to increase 1,000 VND per liter However, the imposition of this tax will push up the price of gasoline in Vietnam while the average income of the people in Vietnam is still quite low, which directly affects the rights of people and businesses Mr Nguyen Minh Duc - Legal Department (VCCI) has stated that "it is impossible to make excuses to offset the budget deficit by raising the tax bracket with petrol and oil" Therefore, this proposal has met a lot of mixed opinions of both people and experts in the economic field Another matter of concern is how environmental tax revenues will be spent National Assembly Chairwoman Nguyen Thi Kim Ngan said all proceeds from the collection of environmental tax should be remitted into the state budget and used for environmental protection work “That way, people will see that the money is not spent for other purposes,” she said Vietnam gained VND 42.4 trillion (USD 1.84 billion) in revenue from the environmental protection tax in 2016, jumping nearly 57 percent from 2015 During the LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 24 same period, spending on environmental protection reached just VND 12.3 trillion, making up 29 percent of the tax revenue In the period 2012-2016, the revenues from environmental protection tax continuously increased over the years The total revenues of environmental protection tax in 2012 were 11,160 billion VND, in 2013 were 11,512 billion VND, in 2014 were 11,970 billion VND, in 2015 were 27,020 billion VND and in 2016 were estimated at 42,393 billion VND The revenues of environmental protection tax accounted for approximately 1.5% - 4.1% of the total State budget revenues and 0.3% - 0.9% of GDP annually The Environment Protection Tax in Vietnam has not covered the harm of the pollution and waste producers, the tax rate has not been studied in the direction of the proposed effectiveness while there is still a situation of applying taxes under governmentally budgetary pressure The law has not yet ensured an appropriate mechanism to mobilize the participation and contribution of all organizations and individuals to participate in environmental protection Therefore, the current protection of the environment seems to be the job of the authorities, but has not really become "the responsibility of the entire people" 3.2 Case study In Vietnam, Environment Protection Tax is partly applied on plastic bags according to the weight on average, each kilogram of taxable-disposable bag will have about 200-500 pieces will be charged an amount of tax about 50.000 VND Even though it seems inefficient, many experts believe that it is impossible to tax on plastic bags by each piece in Vietnam The current Law on environmental protection tax only stipulates general provisions related to plastic bags, which causes many problems in the identification of taxable plastic bags In order to solve this problem, the Government issued Decree No LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 25 69/2012/ND-CP regulating that plastic bags are subject to tax and put this provision in the Law on Environmental Protection Tax to enhance the legality According to statistics, the rate of environmental protection tax on nylon bags in the three years from 2014 to 2016 is about 50 to 70 billion VND, compared to the actual use as a very little part In contrast, in some developed countries like England or Iceland, the tax on plastic bags is imposed on each bag and each is incurred a tax of about 4,500 VND or more According to Article of the Law on Environment Protection Tax 2010, for multilayer plastic bags manufactured or processed from single plastic HDPE, LDPE, LLDPE and other plastic films (PP, PA, ) or other substances such as aluminum, paper …, the Environment Protection Tax is determined by the ratio of the weight of single plastic HDPE, LDPE, LLDPE in multi-layer plastic bags Taxable-plastic bags will be taxed from 30.000VND to 50.000VND per each kilogram It is estimated that by Ho Chi Minh City Department of Natural Resources and Environment, in 2017, 80,000 tons of plastic bags were discharged into the environment However, the proportion of plastic bags collected and recycled by waste treatment companies is only 38% In particular, the number of plastic bags discharged into the environment is increasing sharply, from about 40 tons/day in 2008 to 228 tons/day in 2017 Contrast to the reality, the amount of environmental protection tax paid to the state budget is decreasing, from 746 tons in 2014 to 577 tons in 2017, down 23% On the other hand, the number of imported plastic bags also increased greatly, nearly 250% after years, from 2014 was 63.8 tons to 220 tons in 2017 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 26 The audit also shows that the policy inadequacy is that bags without bottoms are not taxable In fact, when going to buy coffee without drinking at the shop, the sellers often put cups in bags for customers to take home These bags without bottom are not taxable To clarify the inadequacies in tax management for plastic business households, the audit team asked Ho Chi Minh City Power Company to provide the electricity consumption of the plastic bag producing households Surprisingly, the amount of electricity that most households produce plastic bags is up to times higher than the taxable revenue For example, the revenue of tax declaration is VND 100-200 million / year, but based on the electricity cost to produce plastic bags, the actual revenue can reach over VND billion The allocation of taxes to small producers has led to a high taxation policy to push up the price of plastic bags Most of the plastic bags used by many markets and shopping places on the street are produced by small establishments 3.3 Discussion A general principle of taxation is that taxes should as far as possible be levied on final products, consumption and incomes Taxes levied on intermediary products impose additional economic costs by distorting methods of production The scope of Environment Protection Tax should ideally be as broad as the scope of the environmental damage, even much broader The tax rate should be commensurate with the environmental damage It should be credible and its rate predictable in order to motivate environmental improvements Policy makers need to consider the impact of such taxes on groups such as low-income households or pollution-intensive, trade-exposed businesses Environmental tax revenues can assist fiscal consolidation or help to reduce other taxes Distributional impacts can, and generally should, be addressed through other policy instruments LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 27 Competitiveness concerns need to be carefully assessed; coordination and transitional relief can be effective responses Clear communication is critical to public acceptance of environmental taxation Environmental taxes may need to be combined with other policy instruments to address certain issues Specifically, Vietnam needs to research and choose which objects to tax appropriately, for example, tax on consumers will be more effective than taxes on producers The tax on consumption will immediately adjust user behavior, contributing to reducing consumption of this product In addition, the tax on a product, there should be alternative products for consumers to choose, need to have policies to promote the environmentally alternative production and consumption Businesses should also seek out new technologies and production methods for more green products, and raise awareness among their workforce and managers Besides, the Government needs to improve regulations related to Environment Protection Tax and make the best opportunities to push for more science and technology programs, and promote the role of businesses in technological development LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 28 Conclusion Environmental taxation has a significant role to play in addressing environmental challenges Taxes can be extremely effective when they are properly designed, are levied as close to the environmentally damaging pollutant or activity as possible, and are set at an adequate rate Taxes may need to be combined with other instruments to obtain the most efficient and effective environmental policy package The problem for the authorities is what measures and ways can be used to improve and make the tax the most optimal support tool LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 29 References Customer News (21 Jan,2017), Adjustment on environmental protection tax for plastic bags and petroleum Jian Wo and Alon Tal (25 Sep 2017), From Pollution Charge to Environmental Protection Tax National Assembly (2010), Law on Environmental Protection Tax no 57/2010/QH12 Nhân Dân news (6 Apr, 2018), Tax reductions to boost consumption of E5 bio-fuel OECD (Sep, 2011), Taxation, Innovation and the Environment, OECD (21 Jan, 2010), Environmental and Eco-Innovation: Concepts, Evidence and Policies Prime Minister Nguyen Xuan Phuc, (9 June 2019), Vietnam to stop using disposable plastic by 2025 PVOIL (24 Dec, 2018), Production and business results in 2018 [https://www.pvoil.com.vn/en-US/production-and-business-results-in-2018-ofpvoil] PwC (2018), Vietnam Pocket Tax Book 2018 Vietnam Law and Legal Forum (November 4, 2018), Increasing environmental protection tax: causes and effects Vietnam Briefing (March 9, 2018), Vietnam Proposes Higher Environmental Protection Taxes LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 30 [https://en.nhandan.org.vn/business/item/6012702-tax-reductions-to-boost-consumptionof-e5-bio-fuel.html] Việt Nam News (28 Feb, 2018), Environmental tax should help environment [http://vietnamnews.vn/opinion/423474/environmental-tax-should-help-environment.html #pbzhI5JGCxuQrij8.99] Việt Nam News (6 Mar 2018), Mine declines: Good news for sustainability [https://vietnamnews.vn/economy/423764/mine-declines-good-news-for-sustainabilit y.html#zfSpjI9l5b3A7lSB.97] LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ... declaration, tax calculation, tax payment for environmental protection on imported goods shall be made at the same to time of import tax declaration and tax payment - Environmental protection tax is only... to environmental protection law no 57/2010/QH12, the law provides for taxable subject, un-taxable subject, taxpayers, tax base, tax declaration, tax calculation, tax payment and environmental protection. .. Adjustment on environmental protection tax for plastic bags and petroleum Jian Wo and Alon Tal (25 Sep 2017), From Pollution Charge to Environmental Protection Tax National Assembly (2010), Law on Environmental
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