Friday, 19 Jan 2018

The Ministry of Finance proposes to raise VAT to 11% by 2019

Updated at Friday, 05 Jan 2018, 18:52
The Hanoitimes - As of January 1, 2019, the value added tax (VAT) will be increased from current level of 10% to 11%, while this tax rate will go up to 12% since January 1, 2020.
As proposed by the Ministry of Finance, the roadmap for VAT increase will be taken in phases. Specifically, with the current VAT rate of 10%, the new increased tax of 11% would take effect starting in January 1, 2019, and this tax rate will be increased to 12% one year later.
Tax hike is aimed to tackle rising public debt.
Tax hike is aimed to tackle rising public debt.
The Ministry of Finance referred to international practice as reason for this proposal. With this regard, in the context of rising public debt in many countries in the world, countries tend to restructure sources of state revenue through increasing indirect taxes. Moreover, the trend of increasing VAT rate is quite common, as a number of countries have approved tax hike in period 2009 – 2016. 

Specifically, the average tax rate of European Union (EU) member countries in 2000 was 19%, this number had increased to nearly 21.5% in 2014; member countries of the Organization for Economic Cooperation and Development (OECD) have had similar moves with the average VAT of 18% in 2000 increased to 19% in 2014. Asian countries also restructure the sources of state revenue with an increase in VAT such as Philippines, India or Japan. 

According to statistics from the World Bank, countries with income level lower or equivalent to Vietnam is having the VAT rate of over 10% such as Philippines (12%), Pakistan (17%), Sri Lanka and Bangladesh (15%), and Nepal (13%).

Some countries in the region with lower VAT rate than Vietnam but revenue from consumption tax, including the proportion of VAT in total state revenue is higher. Specifically, the proportion of tax for goods and services in Vietnam in 2016 amounted to 7.5% of total state revenue, which is lower than Thailand (53.9%), Laos (55.9%), Cambodia (55.5%), and slightly higher than Philippines (45.6%) – representative of the Ministry of Finance said. The added tax will make up for when Vietnam fulfils its commitment to cut import tariffs under free trade agreements, and help tackle rising public debt.

The Ministry of Finance added, based on the tax reform strategy for period 2011 – 2020, the VAT will be modified in the direction of reducing the categories of goods and services exempted from VAT; reducing categories of goods and services subject to 5% tax; providing additional regulations to properly identify mechanism to collect taxes for goods and services developed through the market economy; by 2020 to apply for a single tax rate (excluding tax rate of 0% for exporting goods and services).

Beyond the VAT increase, the Ministry of Finance has also announced a proposal to double the special consumption tax on pickup trucks from 15 percent to 30 percent, depending on the vehicle model. Soft drinks are also expected to come with a 10 percent tax by 2019, while packs of 20 cigarettes will have a staggering 75 percent slapped on that same year.
Ngoc Thuy
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