Plastic, textile firms say green tax yet to make sense

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What constitutes an environmentally friendly plastic bag? Will plastic bags imported to pack products for export be subjected to recently announced taxes? Will the government help offset the increase in costs that Vietnamese firms would have to bear as a result?

Questions like these are swirling around as plastic and textile companies complain about the recently imposed taxes on plastic bags, and the lack of clear directions from authorities about how the taxes will be applied.

It has been nearly two months since the Law on Environmental Taxes took effect, but Ho Duc Lam, vice chairman of the Vietnam Plastics Association (VPA), says all plastic makers are very "confused" about taxes on plastic bags as regulated by the new law.

The Ministry of Finance has yet to issue directives stating which products should be taxed and how much the taxes should be, Lam said.

In fact, on February 10, the VPA held a press conference to propose that related agencies consider a temporary suspension of the taxes on plastic bags.

It said the law regulated that except "plastic packing" and "environmentally friendly plastic bags," all other bags that are made from high density polyethylene resin, low density polyethylene, or linear low density polyethylene resin would be taxed at VND40,000 (US$1.92) per kilogram. Polyethylene resin, reportedly the most widely used platic, is believed to pose a serious threat to the environment.

However, companies say they are clueless about bags get exception.

The VPA says related agencies have yet to issue standards for a plastic bag to be categorized as "environmentally friendly," while "plastic packing" itself carries a vague definition.

A representative of the General Department of Taxation said at a conference in Ho Chi Minh City last December that "plastic packing means bags that are used to pack goods imported into Vietnam," but this has not clarified matters enough for many companies, especially regarding the packing of locally produced goods.

Big companies are waiting earnestly for directions from the Finance Ministry, Lam said.

"They do not dare to increase prices for fear that they will lose their customers," even though the environmental taxes on plastic bags are increasing their production costs, he said.

Some companies are planning to buy plastic products overseas instead of buying them locally as they think the new taxes would make the latter more expensive, according to Lam.

This will put Vietnam's plastic sector at risk of losing major consumers, he warned.

While it is the correct policy to tax plastic bags and lessen threats to the environment, it is a major shortcoming that law drafters did not properly collect opinions from producers beforehand, Lam said.

Meanwhile, Dang Thi Phuong Dung, general secretary of the Vietnam Textile and Apparel Association, said many textile firms are complaining about difficulties caused by the taxation of plastic bags imported for packing exported textile products.

She said that under Vietnamese law, textile exporters do not have to pay taxes on raw materials they import for production if the goods are exported within 275 days of the import. Raw materials sourced locally are exempt from taxes.

However, "producers now have to pay environmental taxes on imported materials, which does not allow them to decrease production costs and improve their competitiveness," Dung said.

He said the ministry has yet to issue any directive on tax refunds or exemptions for plastic bags used to pack exported textile products.

The lack of tax incentives, in fact, recently prompted the Hung Yen Textile Joint-stock Company to send letters to the finance and trade ministries as well as the government office, proposing a delay in collecting taxes on plastic bags used for packing exported goods.

Nguyen Xuan Duong, director general of the company, which is based in the northern province of Hung Yen, said under the law, his company will have to pay $450,000 in environmental taxes for some six million plastic bags bought in Vietnam to pack its products shipped to the US every year.

The taxes would increase the company's production cost and make it less competitive, Duong said.

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