The Ministry of Finance said the consumer price index (CPI) grew 0.94 per cent in July, bringing the total in seven months to 6.19 per cent. This is a very high rate but, according to the ministry, there is “no sudden rise in price.” Deputy Finance Minister Truong Chi Trung talked with correspondents about price movements in recent months and on the decision to lower import taxes on dozens of commodity categories.
Could you please talk about the reasons for soaring prices in recent months?
The core reasons for the price rise is the price increase of several key commodities on the market, such as the 7.6 per cent increase in electricity prices, repeated increases in petrol prices, the 20 per cent rise in coal for cement, fertiliser and paper production and 10 per cent rise in coal price for electricity generation.
After applying the temporary tax cuts, will the ministry resume the old tariff rates when the market becomes stable?
The temporary tariff is an immediate measure to generate supply (lower than the current price rate) for the market with deep slashes in taxes, with some falling up to 50-60 per cent. We want to emphasize that the policy is temporary. The temporary factor also means that when the goals are reached, adjustments will be made to more reasonable rates, but not necessarily return to the former one. In case market movement is worse than expected, the tax will be cut further. We will closely monitor the import-export revenue of reduced tax commodities, as well as the domestic production situation and the commodity price in order to create suitable amendments.
In fact, in some cases, the tax cut did not lead to a price drop on the market. How will the ministry monitor prices after this tax cut?
Many people think the tax cut only constitutes a small proportion of the selling price, with little effect on the market price. In fact, goods with taxes reduced by 50 per cent in the temporary tariff usually have rather high import taxes of 20-40 per cent; therefore, the tax reduction will considerably lower the selling price, at least higher than the consumer price rise.
Experience shows that the tax cut will immediately impact the price of imported commodities, which will help push down the price of domestically made commodities.
In reality, the price rise results from the psychological factor. Consumers rush to buy a commodity and cause a short supply of that commodity. Producers took advantage of this to hike the price.
Does the tax cut have much effect on State Budget collection and production?
We considered this issue before making the tax cut. Tax reduction always impacts domestic production, as the protection for domestic production of a certain commodity is lowered. However, if the situation continues, the competitiveness of domestic products and companies will be blunted.
Under our calculation, the tax cut will lead to budgetary collection shrinkage, but the volume is not significant.
In general, the tax cut supports the Prime Minister’s Decree 18 to keep the CPI lower than the economic growth rate.
In 2004, when the CPI rose 9.5 per cent, many said Vietnam needed to sacrifice growth to keep inflation stable. What do you think about this issue?
In my opinion, there are different solutions for the matter, but the adoption of any solution must match the country’s condition in that period of time. Obviously, to ensure economic growth, we need a macro solution, it is impossible to swap such an important thing.
Lan Anh
Vietnamese
