MoF proposes VAT increase by 2%

By Chi Hao - Aug 18, 2017 | 11:48 AM GMT+7

TheLEADERThe Ministry of Finance (MoF) has recently proposed to increase the value added tax (VAT) from 10% to 12%, effective from January 1st, 2019. It is estimated that more than half a million businesses and most of the people will be affected by the VAT increase.

MoF proposes VAT increase by 2%
(Photo: Internet)

According to the international VAT reform practice and trends, the MoF suggests two options for raising the 10% tax rate.

Option 1: Increase from 10% to 12% from January 1st, 2019.

Option 2: Increase to 12% from January 1st, 2019 and to 14% from January 1st, 2021.

The MoF proposes to consider Option 1. It is expected that more than half a million businesses and most of the people will be affected by the VAT increase.

To be more specific, the VAT on the goods and services groups (clean water, cultural activities, exhibitions, film production, specialised equipment for teaching, research and scientific experiments...) will increase from 5% to 10%.

Non-VAT groups (fertilisers, machinery and equipment used for agricultural production, offshore fishing vessels, land use rights transfer...) will now subject to VAT.

For the regular VAT rate of 10%, the MOF found that it was relatively lower than in some Southeast Asian countries such as Laos, Cambodia and the Philippines.

Ho Chi Minh City Securities Corporation (HSC) thought that the proposed VAT increase to probably be bad news for consumer goods stocks, while estimating that the tax increase would increase the budget by VND59,000 billion (roughly US$2.6 million), accounting for 33% of the total revenue.

According to Do Thien Anh Tuan, a lecturer at the Fulbright Economics Teaching Program, the current VAT rate of Vietnam which accounts for 30% of the total tax revenue is high. In many countries, the VAT rate is usually 10%. Even with the VAT increase, it is unlikely that the MoF can help the government increase revenues but may even create more social welfare losses or move resources from one industry to another. Moreover, it may trigger the acts of tax avoidance and evasion.

Other economists also suggested that there should be a proper roadmap for the society to adapt to the new tax rate. Also, it is necessary to base on the market and living standards of the people to adjust the tax law.