By the end of August 2017, MoF proposed to raise the VAT from 10 per cent to 12 per cent from January 01, 2019, which faced opposition from many ministries, organizations and the public.
However, MoF confirmed that raising VAT is necessary.
MoF explained that indirect taxes are regressive compared with incomes (high-income and low-income individuals pay the same tax on consumption of the same goods and service).
In order to reduce the regressivity of indirect taxes, many countries in the world, including Vietnam, define that a number of groups of goods and services are not subject to VAT or subject to VAT at preferential rates (lower than the common rate) to reduce the tax burden on low-income individuals.
MoF stated that the rich tend to consume more and use more expensive goods, so they pay a large proportion of VAT. Therefore, the lower VAT actually benefit the rich than the poor.
However, MoF also acknowledged that raising VAT from 10 per cent to 12 might have impacts on low-income households’ spending.
According to MoF, for vulnerable low-income households, there should be measures to support social security such as education, health and infrastructure, to benefit more for the poor.
In addition, MoF said that since VAT is the consumption tax and things subject to VAT are goods and services served for production, business and consumption in Vietnam, raising tax, therefore, can affect the enterprises’ production and business activities.
As a result, the Ministry of Finance said it would accept the controversial opinions and proposed to delay the time on raising VAT.
Accordingly, VAT will be raised from 10 per cent to 11 per cent from January 01, 2019 and from 11 per cent to 12 per cent from January 01, 2020 in order to reduce the impact of VAT increase on production, business and consumption.