Cutting regular spending, not raising taxes, will reduce public debt

While the Ministry of Finance (MOF) is seeking approval for tax hikes to increase the state budget revenue, economists point out that only reasonable government spending will help ease the budget deficit.



MOF plans to raise the VAT (valued added tax) rate from 10 percent to 12 percent, impose luxury tax on soft drinks, and increase personal income tax on Vietlott lottery winners.

MOF said that EU countries impose a VAT rate of 19 percent, and OECD countries 18 percent. The ministry believes that it is necessary to increase the tax rate to come in line with international practice.

Similarly, when attempting to tax 30 percent on lottery winners, MOF explained that the 10 percent tax rate in Vietnam is low compared with the tax that lottery jackpot winners in the US have to pay.

MOF said that Laos, Cambodia, France, the Netherlands and Hungary all impose taxes on soft drinks.

MOF said that EU countries impose a VAT rate of 19 percent, and OECD countries 18 percent. The ministry believes that it is necessary to increase the tax rate to come in line with international practice.

Some months ago, the ministry proposed raising the environmental protection tax to VND8,000 per liter, saying that the tax is even lower than the tax in South Korea and Cambodia, while the petrol price in Vietnam is lower than the price in Singapore, Hong Kong and Laos.

However, analysts said that it is necessary to have a comprehensive view on taxes, and review income per capita and social conditions in Vietnam, rather than just look at tax rates.

Dinh Tuan Minh, a renowned economist, said when planning any tax hike, policymakers need to find out how the changes would affect people and society.

“MOF needs to show the possible positive and negative impact of the moves. For example, what will happen if the VAT rate is raised to 12 percent,” he said.

However, when asked how the VAT increase affects revenue of the state budget, a representative of the Tax Policy Department said the department will only make  calculations if the tax amendment plan is put on the National Assembly’s working agenda.

HCM City Securities Company estimates that if the VAT rate is raised to 12 percent, the state budget would collect VND59 trillion more and revenue from VAT collection would account for 33 percent of total revenue.

Economists emphasized that what Vietnam needs to pay attention now is the public spending. Minh commented that the government seems to be meeting difficulties in cutting regular expenditures.

Thanh Lich / vietnamnet