Vietnam accelerates efforts to reduce retail fuel prices and diversify middle distillate supply sources

Strong points

Hanoi to further reduce environmental protection tax on fuel

Reduced import duties proposed to encourage diversification of sources of supply

Vietnam expected to continue to rely heavily on South Korean petroleum products

Vietnam further reduced taxes on transportation fuels for the second half of 2022 and encouraged fuel traders to diversify their sources of middle distillate imports in a protracted effort to help domestic consumers cope with soaring fuel prices. retail oil prices, industry and government sources said on July 11.

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Under a resolution passed by the Standing Committee of the National Assembly of Vietnam, the duty on gasoline will be reduced to 1,000 Dong/litre (4 cents/litre) from 2,000 Dong/l (8 cents/litre ) from July 11, the Ministry of Finance said in a statement.

The latest tax cut signals the government’s focus on protecting consumers’ purchasing power and tackling rising inflation, after Hanoi already cut gasoline tax by 4,000 Dong/l to 2,000 Dong/l in April, said a distribution and sales manager at a state-owned enterprise. said Petrolimex.

Besides gasoline, the tax on diesel was reduced to 500 Dong/l from 1,000 Dong/l and the tax on jet fuel was reduced to 1,000 Dong/l from 1,500/l, according to the Ministry of Finance.

Discounts will apply from July 11 to December 1. 31. From January 1, 2023, product taxes will return to the original rates.

Headline inflation in Vietnam remains below 4% as Hanoi has managed to control domestic food prices so far this year. Further fuel tax cuts could prove a prudent move as record transport fuel prices could threaten the government’s 4% upper inflation limit target, income analysts say fixed from Vietcombank Securities.

Diversification of fuel imports

In addition to fuel tax reductions, National Assembly Speaker Vuong Dinh Hue has formally requested the central government to consider adjusting import taxes on petroleum products to not only contribute to the lower retail fuel prices, but also to encourage the diversification of sources of supply.

The Ministry of Finance has also proposed to the central government lower import duties on gasoline and ethanol from the most favored nations, or MFN, in terms of international diplomacy and geopolitics.

Under the proposal, import duties on gasoline from MFNs, including China, the United States and major oil-producing countries in the Middle East, would be reduced to 12% from the current 20%.

Vietnam mainly imports gasoline and other refined products from South Korea and countries of the Association of Southeast Asian Nations, the regional partners with which Hanoi had signed free trade agreements. .

Import taxes under the Vietnam-South Korea Free Trade Agreement, the ASEAN Trade in Goods Agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the free trade agreement with the Eurasian Economic Union involving Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan, are currently set at 8%.

The Ministry of Finance said it believed the difference between the 8% import tax for FTA sources and the lower standard duty of 12% for MFN was reasonable enough to encourage importers and distributors national oil companies to seek new suppliers and avoid excessive dependence on South Korea. and ASEAN in the event of supply chain disruptions.

However, it would be extremely difficult for Vietnam to reverse its heavy reliance on South Korean supplies, as most refiners in the Middle East are heavily focused on supplying diesel and other middle distillate products. to Europe amid falling demand for Russian petroleum products in the West, while China’s petroleum product exports are set to fall sharply in 2022 as Beijing remains reluctant to grant adequate export quotas to trading companies and local refiners, middle distillate traders based in Hanoi, Seoul and Singapore told S&P Global Commodity Insights.

In addition, many Asian countries are struggling to produce enough petroleum products to meet their own domestic needs, middle distillate traders said, pointing to South Korea and Singapore as the only two notable countries capable of producing large quantities. volumes for sales in Asia and Oceania.

It would be more profitable for Vietnam to rely on South Korean petroleum products, given the high quality, transparent prices, large production volume and fast delivery, analysts from the Korea Petroleum Association said. and middle distillate distributors from major South Korean refiners, including SK Innovation. earlier.

South Korea exported 14.8 million barrels of petroleum products to Vietnam between January and May, more than double the 6.2 million barrels exported in the same period a year earlier, according to the latest data. of the Korea National Oil Corp.

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