Dr Ngo Tri Long: "Reasons put forward to rise VAT remain unconvincible"

By Thu Phuong - Aug 29, 2017 | 12:32 PM GMT+7

TheLEADERAccording to Associate Professor, Dr Ngo Tri Long, former head of Price and Market Research Institute under the Ministry of Finance, reasons put forward by the Ministry to increase value added tax (VAT) are inappropriate and unconvincible.

Dr Ngo Tri Long: "Reasons put forward to rise VAT remain unconvincible"
Associate Professor, Dr Ngo Tri Long, former head of Price and Market Research Institute

VAT increase up to 12 per cent other than the present 10 per cent proposed by the Ministry of Finance at its proposal on drafting law of adjusting and modifying a number of articles of VAT law, special consumption tax law, corporate income tax law, personal income tax law and natural resource tax law.

TheLEADER has interviewed Associate Professor, Dr Ngo Tri Long, former head of Price and Market Research Institute under the Ministry of Finance about this issue.

Recently, the Ministry of Finance has proposed increasing ordinary VAT up to 12% from 10% by 2019, what do you think about this issue?

Assoc. Prof. Dr.: The main reason to increase VAT put forward by the Ministry of Finance (MoF) is because of the international trend of rising such a kind of tax on consumption goods, which is a compensation for a dramatic reduction incurred by an accession of nations into trade liberation agreements. Also, VAT increase will help reduce personal income tax and corporate income tax. 

The Ministry of Finance stated that at item 3, article 8, VAT law, the ordinary level of VAT is 10%. Through international experience, under the context of rising public debts, nations are tended to collect budget in accordance with an increase of indirect taxes.

Particulary, to increase collection sources due to a loss of income taxes, nations change trend for a rise of consumption taxes. A number of nations applying VAT on rise from 140 to 160 and 166 in 2004, 2014 and 2016, respectively. 

Ministry of Finance quoted the World Bank as source stating that through statistics of 112 countries, 88 are applying VAT level at 12% - 25%, 24 maintain the popular level at 10%. The surrounding countries like Lao, Indonesia, Cambodia apply at 10%, China at ordinary level of 17%, Philippines at 15%. 

Apart from it, the Ministry of Finance also proposed the issue of spending surplus of state budget, rising public debt, falling collection source of state budget. In the meanwhile, demands for new investment rise; therefore, pressure of VAT rise to compensate for downfall of state budget is hiking. 

With regard to this matter, I assumed that the argument of the Ministry of Finance was incomprehensive because in nature, spending surplus of state budget and high public debt are not blamed for low taxes other than wasteful investment and losses of excessive bureaucracy. 

According to the Ministry of Finance, VAT of Vietnam is lower than other countries in the world; however, we have to recount based upon the fact that collection source of VAT in Vietnam is higher than that from other countries.

Therefore, it is necessary to deal with outstanding matters such as battle against excessive bureaucracy, wasteful investment. Improving state budget needs reform of both spending and collection. 

However, if we continue the trend that budget collection is by the Ministry of Finance, whilst the spending is by the Ministry of Planning and Investment. As such, the role of the Ministry of Finance is how to control the capital source of state budget in effective and efficient way.

Other thing is that the use of state budget is ineffective, making people unsecure of paying taxes. In other countries, the collected VAT source is used for social security, health insurance, social insurance. The health insurance system in many developed countries is implemented so well that people find it secure when coming to hospital. It is vice versa in Vietnam.

Regarding education, in Vietnam the state subsidization remains mainly in primary schools whilst it is different from Japan and some others.

Through a variety of evidences, I supposes that the Ministry of Finance's argument on VAT increase is unconvincible and inappropriate.

What impact will be on the economy if the VAT increase applies?

Assoc. Prof. Dr.: VAT is the indirect tax imposing directly on the goods, resulting in a hike of price of goods, affecting consumers. VAT increase will cause big impacts on entire society, especially creating pressure on low incomers, and the poor. 

Also, the tax rise leading to a hike of price of products will make a reduction of purchasing power in the market. Production will find it difficult to consume. Then, it will affect production, affecting enterprises in return, lowering their competitiveness and growth speed of the entire economy. 

Apart from it, our objectives are to stabilize macro economics as well as inflation. In the meanwhile, tax is the primary factor constituting price and hiking price will make inflation rise. It needs a thorough consideration. 

What is your recommendation about this matter?

Assoc. Prof. Dr.: The Ministry of Finance needs to take into consideration every single impact on specific cases as well as consequences and appropriate resolutions. Since then, when is appropriate time to rise VAT. 

The VAT increase shall be very important as it is a big policy impacting the entire society. Therefore, it needs an approval of the entire society. 

Thank you very much!