Vietnam is on track to recover budget revenue

Tax incentives for businesses and individuals have reduced state budget revenues by about 1% of GDP. Photo by H. Van.

On the right track

In order to catch up the momentum of integration, both with WTO commitments and with the implementation of Free Trade Agreements (FTAs) leading to large reductions in tariffs, developing countries have to adjust the tax system accordingly. To increase the proportion of indirect taxes (VAT, SCT, etc.), reduce the proportion of direct taxes (CIT, PIT, assets) in total state budget revenue. Vietnam is not out of the same trend.

As analyzed by Ms. Nguyen Thi Cuc, Chairman of the Tax Consultant Association, when tariffs were reduced, direct taxes reduced and the demand for state budget spending increased, the overspending rate must be controlled under 5% as Congress requirement, there is a need to regulate by gradually increasing the indirect taxes to cover. This principle has been adopted by many countries in the world. For example, the "tax haven" like Japan, the consumption tax at the beginning of the year is 5% but in 2014 it has risen to 8% and from 1st October 2019 will be adjusted to 10%. In Singapore, before taxes on goods and services was 3% in 1995, then it rose to 5% and is now 7%, more than double the initial rate.

At present, the direct taxes of Vietnam are low and declining gradually, such as the CIT when the Law on the application of the standard rate of 32%, then reduced to 28%, 25%, 22% and 20% in 2016. Family allowances for personal income tax will also be raised in 2012 from 4 million VND per month to 9 million VND per month for the taxpayer and from 1.6 million VND per month to 3.6 million VND per month for each dependent. In addition, Vietnam has implemented many tax exemption, reduction and extension policies etc., to facilitate businesses and promote economic development. Together with the reduction of general EIT to about 20% before the roadmap (as required by the Reform of the Tax System Reform approved by 2020 to be reduced to 20%), to encourage investment, CIT reduction is also applied to the first 4 year exemption, the next 9 years reduction for businesses in difficult economic areas, especially difficult or hi-tech investment, etc. These policies have decreased the State budget revenue for about 1% of GDP.

Domestic revenue will reach 84-85% of total revenue in 2020

In fact, the difficulties are still in the foreground when the implementation of international commitments enters the "sprint" phase. Only within ASEAN, from 1st January 2018, 98% import tariff line will be 0%, in which the car straight down from 30% to 0%. The risk of the budget deficit is enormous.

Faced with this situation, the Resolution of the 12th Party Congress requested reasonable mobilization of resources, striving for a 20% - 21% increase in mobilization and state budget ratios, an increase in the proportion of domestic revenues and to build a modern and synchronized tax system. In Resolution No.07-NQ/TU of the Politburo on policies and solutions to restructure state budget, public debt management to ensure a safe and sustainable national financial system also stated: To complete the revenue policy with the restructure of state budget revenues, with a concrete target of up to 84-85%, the share of crude oil and import-export revenue shall be around 14-16% by 2020. This objective has also been mentioned in National Assembly Resolution No.25/2016/QH14 on the National 5-Year Financial Plan for 2016-2020.

Commenting on the issue, Mr. Sebastian Eckardt, Chief Economist at the World Bank in Vietnam, said that narrowing the fiscal gap to ensure budget sustainability and safeguarding public debt is needed. This requires comprehensive and balanced policies in both resource mobilization and efficient spending. Along with the large spending demand, Vietnam is facing huge investment needs in infrastructure as well as health and education for the people. Therefore, measures need to be taken to increase the mobilization of domestic revenue to secure resources for sustainable investment for growth and development in the future. If these measures are not implemented in time, public debt will increase and social services will be severely affected. Therefore, it is important to undertake tax reform to bring revenue back to a sustainable trajectory. At the same time, the tax burden must be shared fairly and the tax environment also needs to support development and investment," said Mr. Sebastian Eckardt.

Recently, to carry out the task of continuing to restructure revenue, the Ministry of Finance has proposed adjusting some tax policies. In particular, the direct tax continues to reduce such as reduction of CIT for microenterprises down 15%, small and medium enterprises down 17%; reduce the number of personal income tax rates to 5 steps, widening the tax gap between low income levels, tax exemption for high-tech laborers, farmers participating in "big fields". The increase in indirect taxes such as the VAT rate from 10% to 12%; increase the tax bracket for environmental protection with petroleum up to 8,000 VND/liter; application of excise tax on cigarettes; SCT collection with fresh water, ...

Recognizing from the perspective of a tax expert, Mr. Nguyen Van Phung - Director General Department of Tax Administration of large enterprises, General Department of Taxation said that every year, the National Assembly, the Government public budget revenues and budget estimates provisions of the State Budget Law. All budget revenues and expenditures are thoroughly discussed by the National Assembly and have a strict monitoring mechanism. In addition, the proposed policies have increased but there are also tax reductions. As a result, the revision of tax policies is not due to high expenditure or shortages but to the roadmap and implementation plan for the Financial Strategy to 2020, the Tax System Reform Strategy 2011-2020 and above all is the implementation of revenue restructure targets as set by the Resolutions of the Party and the National Assembly.