However, as fuel is an essential product, the tax rate needed to be considered carefully, Chung said.

According to a recent bill prepared the Ministry of Finance, fuel is one of eight products that will be taxed under the Environmental Tax Law, expected to take effect on January 1, 2012. The maximum rates will be VND6,000 per liter of gasoline and VND2,000 for kerosene.

With the eighth price hike this year taking effect Friday, the popular 92-octane petrol now retails at VND16,300 per liter, but taxes and fees already account for nearly 40 percent of the price, Chung said. The ratio would surge to more than 50 percent if the new tax comes into effect, he said.

Fuel costs currently take up between 35 and 45 percent of total operation costs at transport companies, and any fuel price hike would badly affect their business, Chung said.

When transport costs rise, consumer prices would also surge, he said, noting that it is end users who would have to carry the burden at the end.

Burden to bare

Under the bill, the tax on fuel products will be levied at the point they are sold to retailers. But economist Le Tham Duong of the HCMC Banking University said it was unlikely retailers would accept paying the tax by themselves.

As the competition in the fuel market is not strong enough, traders would choose to pass on the tax on consumers, Duong said.

Although the rates need to be high for a tax instrument to be effective, it should be noted that high fuel prices would make all other products more expensive, endangering economic stability, he said.

Experts worry that the environmental tax, which will coincide with a plan by the Ministry of Transport to collect fees for a road maintenance fund, would be too much for local consumers to bear.

The Transport Ministry has recently announced a plan to fund the maintenance of Vietnam’s road system with revenues from a new fuel fee. Deputy Minister Le Manh Hung said the fee could range between VND200 and VND500 per liter.

More eco-friendly

Experts also said it would be unfair to impose the same environment tax rate on all drivers if their vehicles have different impacts on the environment.

Nguyen Dinh Tuan, president of HCMC Natural Resources and Environment College, said the ultimate solution for environmental protection would be to reduce vehicle emissions.

Traffic users should be required to have their vehicles checked regularly to make sure they meet environment standards, he suggested.

The seven other products that will be taxed under the Environment Tax Law are tobacco; hydro chlorofluorocarbons (HCFC), often used in fridges and air conditioners; plastic grains and powder made from petrochemical products and imported plastic waste; batteries; cleansing chemicals; mineral acid and sodium hydroxide; and industrial paints.

Reported by Phuong Thanh