Environmental Protection Tax on Aviation Fuel Calls
for a Deeper Cut
Tran Nguyen Phuoc Thong
The Ministry of Finance has proposed a plan to reduce
the environmental protection tax on aviation fuel by thirty percent. Under this
proposal, the tax would decrease from 3,000 Vietnamese dong to 2,100 dong per
litre, equivalent to a reduction of 900 dong per litre. Nevertheless, when
measured against international practice, this reduction remains modest and
appears insufficient to provide strong support for the aviation industry.
International Practice
In Australia, fuel excise for aviation has been
entirely waived. Specifically, from 3 February 2020, aviation fuel has been
exempt from taxation.
In South Asia, India, one of the countries most
severely affected by the Covid nineteen pandemic, has also planned a rescue
package valued at up to 1.6 billion US dollars for the aviation sector, with
the aim of preventing widespread bankruptcies as border closures disrupted air
travel.
The Indian Ministry of Finance has considered
temporarily suspending most taxes imposed on the aviation industry, including
the deferral of fuel taxes. India has further announced that fuel taxes could
be waived until the spread of the pandemic is brought under control and the
aviation sector is able to return to normal operations.
Many experts have observed that, under these
circumstances, any move by the Indian government to exempt aviation fuel from
taxation could amount to a form of salvation, given that fuel taxes account for
nearly forty percent of airlines’ operating costs and that India is among the
countries imposing the highest tax burden in this respect.
In Southeast Asia, Thailand provides a notable example
of tax relief. The Thai government reduced the environmental tax on aviation
fuel by ninety six percent and cut landing and parking fees by fifty percent
until 30 September 2020.
According to Mr Bui Doan Ne, Secretary General of the
Vietnam Aviation Business Association, even a reduction to 1,500 dong per litre
would still be lower than in some countries in the region, as China and
Australia have fully exempted fuel excise taxes.
Why a Deeper Reduction Is Necessary
Aviation has been among the sectors most prioritised
for government support during the pandemic. In Viet Nam, the Government has
already taken a range of supportive measures, including relief packages
encompassing tax exemptions, fee reductions and aviation related service
charges.
Against this backdrop, exempting aviation fuel from
environmental taxation would constitute an appropriate continuation of such
support. A deeper reduction would enable airlines to accumulate resources and
maintain financial stability in support of the broader economy. For this
reason, a reduction of fifty to seventy percent may be more appropriate than
the proposed thirty percent.
It should also be recognised that the Government is
currently promoting demand in the tourism sector, which directly generates
nearly 2.5 million jobs and accounts for 4.6 percent of total employment
nationwide.
The 2017 annual report on Vietnamese tourism prepared
by the Vietnam National Administration of Tourism indicates that tourism
contributed 396 trillion dong, approximately 17 billion US dollars,
representing 7.9 percent of national GDP. Air transport is the primary mode of
travel for international tourism.
Accordingly, the aviation sector serves as a vital
conduit for advancing this policy objective by reducing airfares and enhancing
service quality. Attractive package tours and competitively priced air tickets
that draw larger numbers of tourists would help unlock current difficulties
faced by both the aviation and tourism sectors. For this reason, a substantial
reduction in the environmental protection tax on aviation fuel would facilitate
the recovery of airlines while simultaneously supporting the international
tourism market.
Another rationale is that reducing the environmental
tax on aviation fuel would assist airlines in restructuring debt, extending
repayment schedules and potentially alleviating large outstanding liabilities
and revenue shortfalls accumulated during the pandemic period.
Following a series of state support measures, a
further reduction in fuel taxation would help airlines improve post pandemic
cash flow management through reassessing liquidity conditions and re evaluating
investment strategies, thereby enabling more effective monitoring of cash flow
cycles.
For these reasons, the National Assembly should
promptly decide on this matter to assist the aviation sector, as a substantial
reduction in the environmental tax on aviation fuel would represent significant
support for enterprises and help ease the current financial burden caused by
the pandemic.
If the environmental tax on aviation fuel is genuinely
reduced or exempted for a defined period, airlines will be better positioned to
survive and sustain business operations once the Covid nineteen pandemic has
been brought under control.