VietNamNet Bridge – The Ministry of Finance is drafting the amended VAT law to be submitted to the National Assembly for ratification in the upcoming National Assembly’s 5th session. Under the draft, more products would be subject to the 5 percent tax instead of the current rate of 10 percent.

Businesses not only want the corporate income tax cut, they have also proposed to lower the VAT tax in order to help them clear the big inventories.

The corporate income tax reduction would only help profitable enterprises ease their difficulties. Meanwhile, the businesses which have low revenues and take loss would in no way benefit from the policy.

Therefore, the government, in its latest resolution released on April 4, 2013, requested the Ministry of Finance to consider the VAT cut to help develop the domestic market and improve people’s actual income.

The ministry once kept reluctant in lowering the tax rate, reasoning that Vietnam is one of the few countries in the world which imposes the low tax rate of 10 percent. Besides, it warned that if the corporate income tax reduces by 2 percent as planned, the state budget would lose at least VND14 trillion a year.

Though the VAT rate of 10 percent applied in Vietnam is relatively low, the ratio of the VAT collection on the total tax collection to the state budget still amounted to 26.08 percent in 2012, according to the World Bank.

The proportion is much higher than that of the majority of countries in the world, while it is only lower than Chile (38.7 percent), China (30.3 percent), and Indonesia (31.8 percent).

This spells that in every VND100 dong the state collected from all kinds of taxes, 26 dong came from people. The high percentage of people’s contribution to the state budget has made their actual income lower.

The steady increase in the VAT collection over the last few years, from 21.25 percent in 2008 to 24.3 percent in 2009 and 26 percent in 2012, which has resulted in the fact that the total goods and service retail turnover in the first quarter of 2013 grow more slowly than that of the same period of 2012.

The total goods and services retail turnover in the last two years also reportedly decreased significantly in comparison with the previous years.

The slow growth of the goods and service retail turnover has led to the more seriously high inventories which have been compared with the “clotted blood,” which makes the circulation in the national economy stuck.

As the people’s actual income decreases, while the goods and services prices keep increasing due to the high VAT rate, they would have to fasten their belt, which would lead to the higher inventories and force businesses to scale down the production, or go bankrupted.

A senior official of the Ministry of Finance said that the ministry is considering applying the low VAT rate of 5 percent on more types of goods and services and cutting the number of goods and services to bear the tax rate of 10 percent.

He has revealed that the press agencies which have the income from ads would be able to enjoy the five percent tax rate instead of 10 percent as currently. This would help encourage businesses to strengthen their advertisements on mass media to boost sales and stimulate the demand. This would be a helpful solution to clear the inventories and develop production.

Compiled by Thu Uyen