VAT increase will lead to increase in goods prices

The Ministry of Finance has just proposed to raise the value added tax rate according to two options. Some agree that this will be the basis for restructuring the state budget. However, there are also opposing opinions that need to be considered, to avoid putting more pressure on businesses.

Option 1 increases from 10% to 12% from January 1, 2019, option 2 is to increase according to the roadmap to 12% from January 1, 2019 and 14% from January 1, 2021. In which, the Ministry of Finance proposed to consider option 1.

Budget restructuring

Explaining the proposal to increase tax rates, the Ministry of Finance said that through consulting international experience, it shows that in the context of high public debt, many countries, including developed countries, tend to restructure state budget revenue towards increasing revenue from indirect taxes.

Specifically, to increase revenue to compensate for the decrease in revenue due to the reduction in income tax, countries have turned to increasing consumption tax (value added tax and special consumption tax). The number of countries applying value added tax/goods and services tax has increased from about 140 countries in 2004 to 160 countries in 2014 and 166 countries in 2016.

According to economic expert Dr. Le Xuan Nghia, increasing value added tax will help increase budget revenue, because the current proportion of value added tax revenue in the budget is quite large. Therefore, if the value added tax revenue increases by a few percent, it will create a fairly large source of revenue, while the collection cost is low.

Mr. Dao Huy Giam, General Secretary of the Vietnam Private Sector Forum (VPSF), acknowledged that the draft on raising value-added tax, for which the Ministry of Finance is seeking opinions from units, ministries, sectors and enterprises, is in line with development requirements and trends. Especially in the context of limited national reserves; limited and costly public investment efficiency.

In addition, workers always demand the right to increase wages and businesses always want to be prioritized, favored and created favorable investment and business environments by the Government. To meet most of the requirements, revenue is needed and of course, raising value added tax or special consumption tax on some goods is right.

However, the problem is what is the appropriate tax increase level; the tax increase roadmap needs to be researched, calculated and made public and transparent so that businesses can prepare and plan for their production and business activities.

“The use of tax revenue also needs to be organized to be more effective than before. Tax management activities need to be strengthened and improved to avoid ineffective use or loss and waste,” Mr. Dao Huy Giam proposed.

On the business side, Mr. Giam said that there should be a spirit of cooperation with the Government. We cannot just see the request to raise taxes as a reason to object or be dissatisfied. In fact, the value added tax rate that Vietnam is applying is only at the low average level in the region and in the world. Vietnam also needs a large source of revenue to compensate for the requirements and development needs in the near and distant future.

"That is really linked to the obligations and responsibilities of businesses, along with the rights and requirements to be created favorable conditions and a favorable and equal investment and business environment for development," Mr. Giam shared.

Weigh the benefits

Mr. Vu Thanh Tu Anh, Research Director of the Economics Teaching Program, Fulbright University Vietnam, said that the contribution of value-added tax to Vietnam's total budget revenue is currently quite high, much higher than that of European Union (EU) countries, which have among the highest value-added tax rates in the world.

Goods in supermarkets and stores will increase in price when VAT increases. Photo: Thu Huyen/BNA

Mr. Vu Thanh Tu Anh also analyzed that with the current general value-added tax rate of 10%, revenue from value-added tax has accounted for 27.5% of Vietnam's total budget revenue. However, increasing value-added tax to increase budget revenue does not solve the root of the problem but creates conditions for more budget spending or trillion-dollar projects to be shelved and ineffective.

In addition, economic experts believe that increasing taxes will have a major impact on people's lives. Mr. Vu Thanh Tu Anh said that value-added tax is generally "regressive", so it will hit low-income people harder. Consumers, regardless of high or low income, must pay the same value-added tax for the same taxable products. Therefore, the Ministry of Finance should consider increasing this tax.

From the perspective of an "insider", Mr. Huynh Quang Thanh, Chairman and General Director of Hiep Long Furniture Manufacturing Company Limited (Binh Duong) said: "From the perspective of a business, I believe that no one welcomes the tax increase; especially the value added tax. The reason is that when a business purchases input goods, it will have to pay the value added tax immediately, but to get a refund of this tax according to the Government's regulations, the waiting time is very long, sometimes the tax refund procedures are quite complicated and complicated".

Businesses do not understand why taxes must be increased. If the purpose is to increase the budget to offset the deficit, it does not seem convincing. Not to mention that there are many issues in budget expenditure management that need to be reviewed and tightened; the use of tax revenues is ineffective and is creating opportunities for some individuals to profit. Mr. Thanh shared.

Mr. Huynh Quang Thanh said that increasing value added tax will negatively impact production and business results and reduce profits. Instead of increasing tax, it is necessary to reduce tax because most private enterprises are currently facing many difficulties, especially in the context of economic integration and many levels of competition as present.

Agreeing with this view, Mr. Ha Manh Dung, Chairman of the Board of Directors of GIICO International Investment Group, also acknowledged that the proposed tax increase is not yet known for what purpose; no matter how effective it is, businesses and even people will be at a disadvantage. That is, the price of goods will increase; the input costs for production will also increase, which will also increase the cost price...

In the current context, most businesses are operating at a low level and trying to expand in many ways. If taxes are increased, the cost burden on businesses may hinder their development plans.

According to this enterprise, when the capacity of domestic enterprises is not strong enough; competition in the domestic market and in their own home market is still difficult, the tax increase needs to be carefully studied. In addition, the impact on enterprises, people and the economy will be assessed...

According to Thach Hue - Thuy Duong/baotintuc