VAT increase: Millions of people affected, Ministry of Finance "takes a step back"
The Ministry of Finance has proposed to increase VAT from 10% to 12% effective from January 1, 2019. Concerned that the tax increase will strongly affect all investment - production and circulation, and ultimately millions of people will be affected, many ministries, branches, associations and localities disagree. However, the Ministry of Finance is still determined to increase VAT and only "takes a small step back".
Many disagree
At the end of August 2017, in the draft outline for the law amending tax laws, the Ministry of Finance caused a shock when it proposed raising VAT from 10% to 12%, effective from January 1, 2019.
At that time, many experts, associations, and businesses expressed their concerns. Many ministries and sectors themselves, when giving their opinions to the Ministry of Finance, also suggested that this content be carefully considered.
Specifically, the Ministry of Natural Resources and Environment proposed that the Ministry of Finance consider increasing the value-added tax rate. Because the value-added tax policy has a great impact on the development of the country, each enterprise as well as the lives of the people.
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| The proposal to increase VAT has caused a stir in public opinion. |
“Increasing the normal value-added tax rate will lead to an increase in the prices of raw materials, machinery, equipment, food, labor, etc., causing great pressure on the economy,” the Ministry is concerned.
Sharing the same view, the Ministry of Labor, War Invalids and Social Affairs assessed that increasing value added tax will have a strong impact on people, especially the poor and low-income workers. Because increasing value added tax will increase the selling price of products, goods and services, reducing the competitiveness of goods. Therefore, it is recommended that the Ministry of Finance should carefully study and be cautious when proposing to increase tax...
Citing calculations from the General Statistics Office, the Ministry of Planning and Investment said: Increasing VAT from 10% to 12% will impact macroeconomic indicators such as GDP growth decreasing by 0.5%, consumer price index increasing by 2.28%. Therefore, to achieve the goals of socio-economic development, macroeconomic stability, inflation control and ensuring sustainable revenue sources, the Ministry of Finance is requested to "consider proposing to adjust the VAT rate in the current period".
Many localities such as the People's Committee of Quang Binh province also proposed to keep the current VAT rates of 5% and 10%.
Giving further comments, Hung Yen Provincial People's Committee refuted the arguments "increasing VAT because other countries in the world do the same", "to compensate for reduced import tax", "high public debt".
Hung Yen Provincial People's Committee emphasized: Each country's economic situation is different and value-added tax must be placed in the overall tax system, so citing international experience to decide on tax policy is "not convincing". Therefore, the province proposed that the Ministry of Finance supplement the proposed basis with quantitative research.
“Increasing this tax rate could reduce consumption, leading to a decrease in production and a decrease in contributions to the state budget from businesses producing goods and services subject to this tax increase. The adjustment needs to have a roadmap, not affecting the economy and strongly impacting the poor,” the People’s Committee of Hung Yen province suggested.
The Vietnam Association of Small and Medium Enterprises also emphasized that, in the current context, the tax rate should remain the same, without increasing it for the first 3 years (from the time this Law takes effect). Instead, the increase as proposed in the draft will be implemented from the 4th year onwards.
The association also mentioned that every year, the Government adjusts and increases the regional minimum wage for workers in enterprises, however, the minimum wage still does not meet the minimum living standard (currently meeting about 90%).
Therefore, to ensure that the Government's annual minimum wage increase for workers has the most positive impact, it is necessary to carefully consider the roadmap for increasing value-added tax.
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| The Ministry of Finance admits that increasing VAT affects low-income people, so support policies are needed. |
Ministry of Finance takes a step back
Explaining the above feedback, the Ministry of Finance still maintains the view that increasing VAT is necessary.
The reasons given by the Ministry of Finance are not new, basically the same as what the Ministry mentioned last August.
The Ministry of Finance continues to affirm that low VAT rates actually benefit the rich more than the poor. And that the increase in VAT rates will have very little impact on spending by low-income people - the main consumers of goods and services such as food, healthcare, and education.
In a slightly different twist, the Ministry of Finance no longer argues that raising VAT will not affect the poor. Instead, it acknowledges that raising the VAT rate from 10% to 12% could impact the spending of low-income households.However, according to the Ministry of Finance, for vulnerable low-income households, there needs to be social security support solutions such as: Spending on education, health care, infrastructure, etc. to bring more benefits to the poor. Currently, the Government has support policies such as: Electricity support for poor households, social policy households 49,000 VND/month, etc.
Although maintaining the view that taxes need to be increased, the Ministry of Finance also "took a step back".
Specifically, to avoid impact on production, business and consumption activities, the Ministry of Finance proposed that from January 1, 2019, VAT will only be increased from 10% to 11% instead of 12% as before. The VAT increase (if any) will be applied 1 year later, from January 1, 2020.
