An undated photo of Dung Quat oil refinery in the central province of Quang Ngai. Photo: Hien Cu
The finance ministry has backed state-owned oil giant PetroVietnam's controversial demand for the country's sole refinery Dung Quat to be given further tax breaks to compete with cheap imports, local media reported Monday.
The proposal is "absolutely necessary and reasonable," considering that oil products from South Korea have been taxed at 10 percent this year compared to 20 percent earlier, Deputy Minister of Finance Do Hoang Anh Tuan was quoted as saying.
He said his ministry would recommend a new tax policy for Dung Quat to guarantee "equality" between local and imported products.
Last month PetroVietnam and its subsidiary Binh Son Refining and Petrochemical Company, which operates the US$5-billion refinery in the central province of Quang Ngai, had asked the government to reduce its 20 percent import tax on crude oil.
Without tax breaks, they said, Dung Quat would shut down in two or three months as its customers have been reducing orders in anticipation of lower prices since imports from countries with whom Vietnam has free trade agreements, including ASEAN neighbors, have become cheaper due to lower duties.
Last year the finance ministry reduced the import tariff from 35 percent to 20 percent for Dung Quat.
But now the demand has sparked criticism from economists who said Dung Quat, as an underperforming business project, does not deserve more support.
According to figures released by PetroVietnam, Binh Son posted a cumulative loss of over VND1 trillion ($44.79 million) from 2010 to 2014, but that figure would have been a staggering VND27.6 trillion without a policy that allowed it to pay less import duties.
Since it went into operation in 2008, the refinery with an annual capacity of 6.5 million tons has been relying heavily on tax breaks, including a corporate tax of 10 percent, compared to 20 percent for most companies.