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Vietnam took the lead worldwide in export tax rates on iron ore after the Ministry of Finance raised the tax rate from 30% to 40% from July 2011.

Nearly half a year later, Directive 2 on strengthening the management of mineral exports, which put an end to the export of iron ore, the rate rose to 40%.

Many countries have long abandoned this tax. India is one of a few countries that increased the iron ore export tax rate, but the rate is still lower than Vietnam’s.

Mr. Do Thien Anh Tuan of the Fulbright Economics Teaching Program said that high tax rates could urge smuggling and benefit some subjects and worse, this policy has by chance supported China's steel industry.

It creates lucrative opportunities for some nefarious interest groups, from businesses using steel as raw material inputs to resource management, import and export agencies.

If the government truly wants to regulate the output, the natural resource rate which is currently at 12 percent should be raised, and management of iron ore resources should be improved, Tuan suggested.

The shortcomings of policies have caused real impacts as iron ore continues to be smuggled across the border.

There were significant differences in both the quantity and price of Vietnamese iron ore exported to China in 2013 when comparing data from the custom agencies of Vietnam and China (see Table 1).

Consequently, Vietnam suffered budget losses of nearly VND4 trillion (see Table 2), including export taxes, royalties, fees for environmental protection and road maintenance.

The Customs Newspaper cited sources from the Ministry of Industry and Trade as saying that the total design capacity of the operating iron mines in the country is about 4.5 million tons per year, far exceeding domestic demand. This figure is almost exactly equal to the amount of ore China imported from Vietnam in the year.

So the question remains: where do the sources of iron ore for Vietnamese factories using blast furnace technology (producing steel from iron ore) originate?

The Hoa Phat Group alone used 1.6 million tons of iron ore in 2013. In addition, after the Directive 2 took effect, the prices of domestic ore were cheaper than imported ore. Is it true that the total design capacity of iron mines in 2013 was not 4.5 million tons as calculated by the Ministry of Industry and Trade?

In fact, the State management agencies faced many difficulties in controlling the output of each mine. A report by the Ministry of Natural Resources and Environment said that as of May 2013, nearly 90% of the total number of 4,782 valid mining licenses were granted by provincial authorities.

An economist said that big mines would have been licenced by the central government but they were broken down into smaller mines to give control to local governments.

In 2013 the national inventory of iron ore is about 3 million tons. Many mines said they could not find domestic customers.

These was the grounds for the Ministry of Industry and Trade to submit its "temporary solutions" to the government, allowing the export of 1.9 million tons of iron ore.

Despite oversupply, not everyone could buy iron ore directly from mines, particularly the firms requiring invoice transparency.

According to the Ministry of Industry and Trade, in the past 12 years, the budget annually spent VND180 billion ($9 million) for basic investigation of minerals.

The Department of Mineral Operational Control of the Ministry of Natural Resources and Environment also reported that less than half of the mining organizations submitted their periodic reports to the Ministry and many reports were insufficient. Miners self declared their output to the state and they paid taxes based on that.

The considerable difference in prices and output of iron ore for exports recorded by the Vietnamese and Chinese customs agencies is not a new story. Shipping iron ore requires motorized vehicles, by road, river or sea, so how can iron ore be smuggled across the border?