Experts concerned about VAT increase proposal

The Ministry of Finance recently proposed increasing value-added tax to 12% in 2019, from 10% in order to ease the high public debt. This has raised concerns from local experts.

The Ministry of Finance recently proposed increasing value-added tax (VAT) to 12% in 2019, from 10% in order to ease the high public debt. This has raised concerns from local experts.

Under the Ministry of Finance’s proposal sent to the government, VAT would be increased to 14% from 2021.

 

VAT increase is likely to cause higher prices of goods and services

According to the Ministry of Finance, many countries, including developed ones have tended to restructure the revenues of the state budget as a way to deal with their high public debt. So, increasing VAT is among the measures for Vietnam at present.

However, economist Le Xuan Nghia, head of Business Development Institute, VAT increase is likely to cause higher prices of goods and services, affecting competitiveness as well as consumers.

Many countries in the world do not want to apply indirect taxes and their VAT is much lower than Vietnam as well. Some states in the US do not charge VAT.

According to economist Vu Thanh Tu Anh, director of Research at the Fulbright Economics Teaching Programme, with the current 10%, VAT has contributed up to 27.5% of Vietnam’s total state budget revenues compared to the average level of 21.4% of European countries.

Anh frankly pointed out that the reasons for Vietnam’s high public debt and state budget deficit is the low efficiency of state budget spending, but not due to the application of low taxes.

The VAT rise may fuel the country’s state budget overspending and result in more and more ineffective projects which are often left idle for years or face huge losses.

"The trade deficit has been a thorny problem in Vietnam for many years. We should maintain the current tax levels or even reduce them, but it is really essential to tighten control over the state budget spending so that state-owned project implementation can be more effective. It is also important to streamline human resources in state-owned agencies, cutting unnecessary units and agencies,” Anh highlighted.

Vietnam’s public debt is forecast to reach 64.8% of the country’s GDP in 2017, only 0.2% off the limit set by the government in the 2016-2018 period.