May 22, 2018 06:30

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Saying 'raising taxes on consumers is against the market economy' is not accurate

08:28 | 07/09/2017

VCN- This is confirmed by a financial expert, Associate Professor, Dr Nguyen Thi Mui, the member of the National Financial and Monetary Policy Advisory Council, commented on the draft law on the amendment of five tax laws that the Ministry of Finance is seeking public comments.  

saying raising taxes on consumers is against the market economy is not accurate
Associate Professor Nguyen Thi Mui.

When the Ministry of Finance made a proposal to increase the common VAT rate from 10% to 12%, many people said that this would increase the burden on the poor. Do you agree with this view and how do you assess the impact of raising VAT?

Value-added tax is an indirect tax, thus increasing taxes, often leading to increases in the price of goods and services. The proposed common tax rate increased to 12% does not apply to food, health and education. Consequently, consumers, especially those with low incomes, are affected, but not many. For businesses, if the document is fully and legally valid, the business is deducted VAT. If the impact on the business only in terms of documents, invoices purchase and sale of goods and services are not in accordance with regulations should not be deducted VAT.

In this case, businesses often put in the cost, so to a certain extent, will affect the income of enterprises. Currently, more than 90% of businesses pay tax, declare tax deduction and online tax settlement, so the number of enterprises that do not meet the provisions of tax deduction has been much limited. Therefore, if the income of the population remains the same, they will save money, which in turn will affect the enterprises.

Assessing the impact of VAT increases should have accurate and complete data and information. In general, when tax increases will ensure state budget revenue, conditions to restructure revenues, expand the tax base. But also note, tax increases will negatively affect end-consumers. Therefore, the Ministry of Finance needs to fully assess the impact of the policy on different types of interest groups in order to share and create a consensus on the implementation of the tax adjustment policy.

Is the increase of VAT to 12% reasonable and follow the general trend in the world as the Ministry of Finance explained or not, madam?

When proposing to increase the VAT to 12%, the Ministry of Finance must certainly weigh in on aspects. When corporate income tax is expected to be adjusted from 20% down to 17% and 15% for small and medium enterprises have revenue of 50 billion VND and less than 3 billion VND; The personal income tax (PIT) is expected to be 5 levels, the current taxable income from 2 million VND to 5 million VND etc., assuming that other factors remain unchanged, how much will the state budget revenue from taxes be reduced?

Similarly, when expanding the tax base on excise taxes, natural resources and added value, as well as increasing the VAT for some areas, how much is expected to be earned, from which to increase the income level to ensure both revenue and stability of revenue sources for the state budget, ensuring equality in tax payment, and conditions to narrow the gap of state budget deficit.

Also, is the increase of the VAT to 12% the general trend in the world? This needs to be understood more fully. At present, many countries tend to reduce direct taxes (CIT, PIT) to create favourable conditions for enterprises to develop.

When it is necessary to restructure revenues, it is customary to adjust indirect taxes (VAT, excise taxes), in parallel with the restructure of revenue sources. Vietnam is also following this trend. Corporate income tax reduced from 32% to 20% and is expected to fall to 17% and 15% by 2019. PIT duty is tax deferral, which will benefit the average and good income workers. When it is necessary to adjust the revenue for stability, it usually regulates indirect taxes like VAT.

In the proposal of the Ministry of Finance, the price of domestic water was proposed to adjust from 5% to 10%, what do you think about this issue?

In Vietnam, there are still some goods and services that have not yet been included in the price, VAT is still preferential, including water for a living. In the past few years, this sector has been socializing, the water used by business enterprises, if still keep the preferential tax rate of 5%, is not fair to businesses trading other commodities subject to tax rates of 10%. Therefore, it is expected to adjust up to 10%, to ensure equality between enterprises in the performance of tax obligations to the state.

It is reported that the share of VAT in current budget revenue is about 27%. In the context of difficult budgets, raising taxes is a solution to combat budget deficits effectively. But if we do not raise VAT, is there a more viable alternative to reducing the budget deficit?

In 2016, the share of VAT in total state budget revenue is about 27%, if the VAT comparison of total state budget revenue can be higher than some EU countries (EU average 21%). But it is important to note that only a comparison in a tax is not sufficient because, in order to assess the level of revenue, it is necessary to consider all taxes and fees in total state budget revenue and the state of the economy.

If we put a question on how to reduce the state budget deficit, I think raising taxes is one of the solutions. The experience of many countries in the world shows that raising taxes is not easy for social consensus because it affects the interests of different population groups. Vietnam is also in this state.

The Bill is expected to be adjusted in 2019, but the Ministry of Finance has been and will continue to implement many solutions to restructure state budget expenditure, especially recurrent and debt payments (but not an unreasonable remedy immediately); application of information technology in tax collection and administration, to minimize losses, avoidance and tax evasion; improve efficiency of state budget spending; strictly handle tax officers violating professional ethics etc.

However, due to the uncertainty of state budget spending over decades, which has a great impact on national financial security, besides restructuring state budget spending, it is necessary to expand the tax base, reduce 5 taxes, including VAT to be included.

As a consumption tax, the basic VAT increase does not affect the business but mainly impact on increasing prices of goods directly to the end consumer. Is this view true or not?

Increasing VAT will increase the price, for end consumers affected, but the level of effect is different. For example, the World Bank surveyed 20% of low-income people, paid only about 9% of the total VAT, and 20% of the high-income people (the rich) paid upwards 40% of the total collected VAT.

Although the impact of raising VAT to different groups of consumers, the increase in VAT ultimately affected consumers is true. While for VAT, businesses are deductible, but by increasing the VAT, increases the price of goods and services. If the income of the population does not increase, low-income people will save money, this will affect the enterprises due to slow consumption of goods, etc. Therefore, this issue should be noted.

As noted, VAT currently accounts for over 27% of Vietnam's revenue structure. It is known that the rate is higher than EU (average 21%). The Ministry of Finance wants to increase from 10% to 12% with the majority and increase from 5% to 10% for many goods such as clean water, medical equipment, education, what problems will arise, Madam?

In fact, higher or lower than just one tax does not say it all. It is necessary to take into account the share of consumption taxes, including the VAT on total state budget revenue. In 2016, according to Ministry of Finance data, the proportion of tax on goods and services accounted for 47.5% of total state budget revenue; this proportion in Laos, Cambodia, Thailand and the Philippines is 55.9%; 55.5%; 53.9% and 45.6% respectively. On the other hand, the proportion of VAT in total state revenues is high or low depending on the level of regulation of taxes in a country's tax system.

The draft VAT adjustment for clean water, medical equipment, education from 5% to 10%, in my opinion, is necessary. Since the sector has been widely socialized in recent years, businesses operating in this field are also doing business, it should be equal to other companies paying a tax rate of 10%.

Referring to other countries, most of them want to grow, they must promote consumption, encourage consumption. However, in Vietnam, we have proposed raising taxes on consumers. Do you think that this move is against the market economy?

Economic growth is always linked to the size of consumption and consumption of the country as well as the people on the basis of the income level. This time, the Ministry of Finance proposes to amend at the same time all five taxes, with increased tax (VAT) but with reduced tax (CIT) and extended tax scale and raising the current income level is subject to tax from 2 million VND to 5 million VND (PIT) to create conditions for businesses to grow and people have additional income.

So the idea is focused on VAT and says that "Vietnam's proposal to increase tariffs for consumers is against the market economy" is not complete and accurate.

Thank you, Madam!

By Hồng Vân/ Huu Tuc