Vietnam’s Ministry of Finance has recently introduced a draft of amendments to various taxes such as Value Added Tax, Special Consumption Tax, Corporate Income Tax, Personal Income Tax, and Natural Resources Protection Tax. The tax hikes aim to increase tax contributions and reduce public debts. The government has allowed public feedback and will then submit it to the Ministry of Justice. The amendments will be submitted to the Government in September for final approval.
Why increase taxes
According to the government, the amendments will reduce dependence on preferential tax treatment from State, facilitate trade and manufacturing, diversify production, and reduce the State’s growing debt. Vietnam’s public debt stands at 64.8 percent of its GDP in 2017, only 0.2 percent less than the threshold limit set in 2016-2018. The tax hikes will also improve competitiveness and reduce State losses incurred through various tax evasion strategies.
With growing incomes, the government also hopes to increase tax contributions, which can facilitate the development of remote areas with poor socioeconomic conditions.
Apart from increasing tax contributions and reduce the State’s debt, the proposed hikes will be in agreement with Vietnam’s economic conditions and will increase growth and global integration. Over the last few years, contrary to most major economies, Vietnam has not increased taxes. In 2016, 166 countries increased their taxes. In EU, the income tax increased to an average of 21.5 percent from 19 percent in 2000. Similarly, the Organization for Economic Co-operation and Development (OECD) nations along with countries such as Japan and India also increased certain taxes.
Value added tax
According to the amendments, the number of goods and services receiving preferential treatment of five percent VAT will be reduced. In addition, VAT can also be increased from 10 percent to 12 percent from 2019, or 12 percent from 2019 to 14 percent from 2021.
Businesses with five percent VAT will be reimbursed in full if they can prove that input VAT amount levied on input goods for export has yet to be completely deducted after four quarters or 12 months. VAT deduction for non-cash payment with invoices is now not applicable for purchases of less than VND 10 million (US$445) instead of the earlier VND 20 million ($890).
Certain goods used in agriculture, medicine, education, science and technology, currently have a preferential five percent VAT, which can be increased to six percent.
Special Consumption Tax
The government has proposed an increase in special consumption taxes (SCT) for certain products. Soft drinks will be included the list of goods on which 10 percent SCT will be levied from 2019. Tobacco-based products will increase from the current 70 percent to 75 percent in 2019. An additional flat SCT of VND 1,000 ($0.04) per pack of 20 cigarettes and VND 1,500 ($0.06) per cigar will apply from January 1, 2020.
SCT on Trucks and semi-trucks will be 60 percent of the SCT of the passenger cars of the same horsepower. SCT on passenger cars with less than nine seats will also be changed, but the government has not specified the change as of now.
Corporate income tax
Under the new draft, 15 percent corporate income tax (CIT) will be levied on extra small businesses whose annual revenue is less than VND 3 billion (US$133,690). Small and medium-sized businesses with revenues ranging from VND 3 billion (US$133,690) to VND 50 billion ($2.2 million) will be subjected to 17 percent CIT.
Further changes can also be implemented in the coming few weeks to facilitate domestic businesses and boost investment in high-value manufacturing and supporting industries.
Natural resources protection tax, personal income tax, and property tax
Natural resources protection and personal income tax can also be changed to increase compliance with electricity, customs, and natural resources regulations and reduce administrative tax paying issues. Income tax on lottery winners is also predicted to increase except for people with low personal incomes. The government has not provided specific slabs for such taxes as of now.
Property tax on second or more properties owned by individuals has been put on hold for now.
Proposed hikes have received mixed reactions from economists and business owners. On one hand, some believe that the tax hike will help reduce the increasing public debt and will not affect businesses or consumers in a major way, while the opposing argument asks the government to reduce spending and control the debt, rather than raise taxes.
Although during the public feedback and approval process, the rates can change, industry experts believe that it is highly unlikely that the Ministry of Finance will reduce any of the proposed rate hikes.
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