Low-income earners 'hurt' by VAT hike

Regarding the Ministry of Finance's proposal to increase value-added tax (VAT) on consumer goods from 10% to 12% from 2019 or to 14% from 2021, many opinions disagree with this issue, and at the same time recommend that the Ministry of Finance be cautious when adjusting the tax rate.

The disadvantages outweigh the benefits.

VAT is an indirect tax but affects consumers. Therefore, public opinion is concerned that increasing taxes will increase prices of goods, affecting people's lives and the economy. Some people think that increasing direct taxes focusing on the rich and high-income earners and personal income tax in a progressive manner will be more equitable.

"Consumers, regardless of their income, have to pay the same VAT rate for the same taxable products. However, because low-income people have to spend a larger proportion of their income on consumption, the tax burden they have to bear will be a higher proportion of their income. Increasing VAT will hurt low-income people more," said Vu Thanh Tu Anh, a lecturer at Fulbright.

According to Mr. Vu Thanh Tu Anh: Currently, the contribution of VAT to Vietnam's total budget revenue is quite high, much higher than that of EU countries - countries with VAT rates among the highest in the world. With the current general VAT rate of 10%, VAT accounts for 27.5% of Vietnam's total budget revenue. Meanwhile, with a much higher average general tax rate (21.3%), VAT only accounts for an average of 21.4% of the total budget revenue of EU countries. "This shows that increasing the VAT rate does not obviously improve the role of this tax in the total budget," the expert emphasized.

“Business people need a predictable business environment. If taxes are suddenly increased, business plans will change due to increased costs and prices, and reduced profits. When prices of goods increase, people will tighten their belts and spend less, when most of the money has to be used for essential expenses. On the contrary, it will make it difficult for businesses to sell their products, profits will decrease, so taxes will also decrease. This is a disadvantageous situation,” said economic expert, Dr. Le Dang Doanh.

The fact that the "milk" of the State budget is facing many pressures, especially tax reduction according to the international integration roadmap, causing revenue to decrease, so the Ministry of Finance is looking for channels to compensate for the revenue shortfall, which is not difficult to understand. However, a representative of the Academy of Finance is concerned: If VAT is increased to a certain level, in the condition that prices are stable and spending money for welfare purposes is a way to manage the budget. Increasing taxes will lead to price increases (although not much) and other impacts, so it is necessary to calculate specifically.

The root of the problem is budget cuts.

According to some economic experts, if taxes are still increased, the Ministry of Finance needs to review and classify groups of goods subject to high taxes; at the same time, restructure budget revenue and expenditure, reduce regular spending, and reduce pressure on the State budget.

By the end of July 2017, regular expenditure had reached nearly VND511.3 trillion (up 7.4% over the same period last year, and accounting for more than 73% of budget expenditure). Therefore, the move by the Ministry of Finance to propose increasing VAT is aimed at increasing revenue for the State budget to ensure spending, not allowing the deficit to become too high.

“In my opinion, the most important cause of public debt and heavy budget deficit in Vietnam is not the lack of budget mobilization capacity but the low efficiency of budget spending, while the budget spending ratio is currently very high, up to 28-29% of GDP. Increasing VAT to increase state budget revenue not only does not solve the root of the problem but also creates conditions and fosters “overspending” budget spending or ineffective, trillion-dollar projects,” said Mr. Tu Anh.

VAT increase, consumers have to pay more, but businesses are not affected. Illustration: Thu Huyen

Economist Nguyen Duc Thanh said: In the context of high public debt and current budget deficit, the Government needs to have solutions to control spending. “The tax increase demonstrates low ability to control spending. In fact, Vietnam's tax revenue is already high compared to many countries in the region, if VAT revenue continues to increase, it will cause difficulties for the economy. The root of the problem is cutting spending, not expanding revenue like this,” expert Nguyen Duc Thanh analyzed.

Although there is no exact measurement of the impact of this policy on the market, according to financial experts, when taxes increase, the prices of goods will increase. Therefore, the Ministry of Finance needs to review carefully, possibly increasing some non-essential items that do not encourage consumption such as cigarettes, soft drinks, etc. As for essential items associated with input factors of production that increase costs, they need to be carefully considered.

“We should not increase all items at the same level, we should filter to find the appropriate increase level, roadmap and time, to avoid shocks to the economy and not affect many other goals such as stabilizing production, social security and people's rights. Besides increasing budget revenue, we also need to reform administrative procedures and apparatus to reduce regular spending. If we keep the same level and increase budget revenue, the problem will not be solved,” shared Dr. Nguyen Minh Phong.

According to Minh Phuong/baotintuc