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CPTPP will not affect suddenly the State budget revenue

14:34 | 06/12/2018

VCN – CPTPP has been officially adopted by the National Assembly on November 11th 2018. Mr. Vu Nhu Thanh, Director of International Cooperation Department under the Ministry of Finance shared opportunities and challenges from this Agreement on Vietnam’s financial sector.

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cptpp will not affect suddenly the state budget revenue
Mr. Vu Nhu Thang, Director of International Cooperation Department, the Ministry of Finance

The CPTPP has included many financial commitments. Could you please share those commitments, Sir?

In the CPTPP, financial commitments include some main contents on import and export tax policy, customs cooperation, securities and insurance. Particularly, in the financial service, foreign investors operating in Vietnam are not permitted to apply the mechanism on Investor-State Dispute Settlement (ISDS) to sue Vietnam’s Government on violation on obligation on minimum standards of conduct. If comparing to WTO, in CPTPP, Vietnam undertakes to expand some new insurance service types in order to create an opportunity for market accessibility for foreign providers such as border-retransfer insurance and insurance subsidy service.

At the same time, Vietnam is committed to providing national treatment to foreign securities service providers for a number of services, such as cross-border financial data processing; consultancy service and cross-border subsidy services related to trading accounts or customer accounts and cross-border portfolio management service

One of the highlights of CPTPP is its commitments on tax. So what kind of taxes will be changed when this Agreement comes into force, Sir?

- In the CPTPP there are commitments on import and export taxes and import and tax policy. For import tax, Vietnam undertakes a common tariff for all CPTPP members, in which 65.8% of the tariff lines are subject to a 0% tax rate as soon as the Agreement enters into force; 86.5% of the tariff lines are subject to a 0% tax rate in the fourth year from the entry into force of the Agreement; 97.8% of the tariff lines are subject to a 0% tax rate in the eleventh year from the entry into force of the Agreement; The remaining goods are committed to abolishing import tariffs with a longer roadmap or tariff quotas.

With regard to the average tax rate, the CPTPP special preferential import tariff has an average tax rate of 5.8% (2019) which is significantly higher than the 10 FTAs which are currently being implemented of Vietnam. However, with the commitment of deep tax reduction, by the end of the year of the roadmap for FTA tax reduction (2029), the average tax rate under CPTPP is only 0.3%, much lower than average tax rate by the end of the year when the roadmap finishes in some FTAS (ACFTA 3%, AKFTA 4.1% and AANZFTA 2%)

As for export tax, Vietnam is committed to eliminating most of the tariffs on exports to CPTPP members on a roadmap of up to 15 years. Other important commodities such as coal, petroleum and some ores and minerals (70 items) will continue to be subject to export tax and a tax ceiling rate

In addition, parties are committed to not levy an import tax on one item regardless of origin when that item is re-imported to their territories after it has been temporarily exported to the other party for repair and replacement. In addition, the CPTPP also exempts import tax on commercial goods of negligible value and advertisement publications; goods temporarily imported for a certain purpose, and remove the regulation on temporary import and re-export at the same border gate and allowed means of transport to travel on any roads for quick and reasonable exports.

Together with such great changes, what are big opportunities for our country’s finance and economy?

Firstly, it is required to mention Vietnam’s export commodities with great potential such as such as agricultural and fishery products, electricity and electronics have been exempted from tax as soon as the Agreement came into effect. According to the World Bank, Vietnam exports may increase by 4.2%. At the same time, joining the CPTPP will help Vietnam to restructure the import-export market in a more balanced manner and not too much depend on China and South Korea.

Secondly, commitments in CPTPP on services and investment, customs will have positive effects on improving the investment environment, attracting foreign direct and indirect investment. In addition, Vietnamese enterprises have the opportunity to join the new supply chain after the CPTPP has been put into effect, including a number of potential industries such as electronics, food, beverages, tobacco, textiles, chemicals, plastic products and transportation device.

Thirdly, the participation in the CPTPP - a high standard of FTA - will be an opportunity for Vietnam to continue to perfect the market economy mechanism and renew the growth model.

The CPTPP offers opportunities for economic development but also poses challenges for institutional improvements and the development of the domestic market. What are these challenges?

Participation in the CPTPP will certainly pose challenges on Vietnam. The first challenge is that the national competitiveness, enterprises and products of Vietnam are lower than that of CPTPP members. As non-tariff barriers will become more common, product quality requirements are stricter, accordingly, the uniformity in inspection procedures, non-discriminatory technical standards in the CPTPP will help Vietnamese goods reduce costs when accessing markets and comply with regulations. However, in another perspective, this is an opportunity for Vietnamese enterprises to improve their own capacity, technological innovation, management and modern production processes, thereby enhancing the superiority of Vietnamese export products.

In addition, Vietnam’s financial market and the stock market also have met challenges when Vietnam implement CPTPP. Vietnam’s legal system and investment environment are in process of perfecting the development of the market economy. It is therefore required to develop prudent management measures in line with international practices to develop a stable and sustainable financial system and financial institutions and prevent risks from movements of external financial markets. The increase in foreign investment inflows to Vietnam also requires the monitoring capacity for investment flows in and out Vietnam to avoid the risk of asset price bubbles and sudden investment withdrawal.

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So, do the changes in the CPTPP affect the state budget structure, Sir?

- The reduction of import tax as committed will reduce the budget revenue but will not be a sudden impact because of the CPTPP members, 7 out of 10 members have had FTAs with Vietnam and the roadmap for import tax reduction is relatively long (10 years). Meanwhile, Vietnam is entitled to levy an export tax on some commodities with big revenues such as crude oil and some minerals, therefore, the import is not significant.

Thank you, Sir!

By Thuy Linh/ Huyen Trang