Deputy PM demands tax hike reviews, experts beg to differ

Workers at the HCM City Tax Department instruct tax payers during registration. - VNA/VNS Photo Hoàng Hải

The MoF sought to make changes to the laws on Value Added Tax (VAT), Special Consumption Tax (SCT), Corporate Income Tax (CIT), Personal Income Tax (PIT) and Natural Resources Protection Tax (NRPT).

Regarding the recent drafts, the Deputy PM said that revisions and amendments based on public and experts’ opinions, in compliance with other newly issued regulations from the National Assembly (NA), such as the law on Support for Small and Medium Sized Enterprises (SMEs), or the Law on Investment, were needed.

Huệ requested the MoF re-examine the VAT law amendments. He asked that some regulations be readjusted, such as agricultural products being exempt from tax registration, goods and services being subject to a 12 per cent VAT level from the previous 10 per cent, or some other groups of goods and services being denied preferential VAT.

On the SCT amendments, the Deputy PM said that the MoF must consult the Ministry of Industry and Trade (MoIT) before deciding whether or not SCT should be applied to passenger cars with nine seats or fewer.

Moving onto the CIT law adjustments, Deputy PM Huệ asked the MoF to take the NA’s recently issued law on SME support into account. One example is the regulation on taxation of revenue from real estate ownership transfer, in which a loss may not be calculated when summing up businesses’ taxable incomes.

He also touched on the PIT amendments, regarding which he suggested the MoF reduce the PIT rates to five progressive ones, with larger differences between the lower tiers, and rounding up taxable income amounts to the ten millions of Vietnamese đồng.

In particular, he asked that for those with up to VNĐ10 million ($445) in personal income per month, the appropriate tax rate should be 5 per cent, whereas those with VNĐ10 million to VNĐ30 million ($1,336) income per month, the rate should be 10 per cent; then from VNĐ30 million to VNĐ50 million ($2,227), a 20 per cent tax rate will apply; from VNĐ50 million to VNĐ80 million ($3,563), 28 per cent tax rate; and for those with more than VNĐ80 million personal income, the rate will be 35 per cent.

The Deputy PM also asked the MoF to work with the Ministry of Natural Resources and Environment and the MoIT to reach an agreement on the amendments to the NRPT.

He explained that since tax laws are crafted to suit Việt Nam’s global integration and economic growth goals, they must create a balance between State budget revenue and spending, especially in the context of possibly decreasing exports due to coming free trade agreements, as well as to ensure a readily mobilised capital flow and guard against tax base erosion.

Experts doubtful

The most controversial tax law amendment at this point is undeniably the 2 per cent increase to consumer VAT level starting in 2019. Should this change take place, Việt Nam will have the second highest level of VAT in the Asia Pacific region, second only to the Philippines at 18 per cent, not to mention the proposed increase of the preferential VAT level from 5 per cent to 10 per cent.

As such, experts and analysts believe this will have a negative impact on consumption, especially in the context of barely improving national purchasing power.

Despite the MoF’s explanation that the VAT increase is for the purpose of preventing a State budget deficit and rising public debts when import taxes decrease towards zero in the face of free trade agreements, they have yet to produce solid evidence that this can be achieved through higher VAT and other taxes alone.

Ngô Trí Long, former MoF’s Market and Price Research Institute’s Deputy Director, was opposed to the ministry’s idea, saying that taxation is a tool for economic growth, but it cannot on its own balance the State budget.

He argued that since the focus had long been placed on reconstructing the budget input, there was little attention paid to the output, which had many unreasonable expenses. Long then went on to state that with the 2 per cent increase in VAT, there could be less demand from consumers who are price conscious, which would ultimately defeat the MoF’s purpose.

Economic expert Bùi Trinh concurred with Long, saying that a higher VAT level could lead to higher Producer Price Index, which leads to a higher Consumer Price Index. During the next cycle of economic growth, there would be deficits despite the initial increase in the State budget.

In conclusion, he agreed that though he could see the ministry’s reasoning behind the tax hike, he believes it is better left for later, as living standards and incomes are sure to have risen by then. Long explained that any sort of tax increase must be based on economic reality, instead of stiff economical logic.

Other concerns were also raised by the Ho Chi Minh City Real Estate Association (HoREA) in an official dispatch submitted to the Prime Minister Office on August 17, the MoF and other departments, stating their general disagreement with the proposed tax amendments.

They worry that within the real estate market alone, a VAT level of 12 per cent will increase the cost of construction materials, labour and maintenance that will ultimately drive up the price of housing and other construction, all of which will be borne in the end by buyers.

The HoREA suggested that the VAT level be kept at 10 per cent until 2021, citing the fact that the majority of ASEAN countries have their VAT at 5 to 10 per cent, and boast economic progress on a similar level to Việt Nam.