VAT increase: Who will suffer?

The proposal to increase VAT from 10% to 12% may cause difficulties for the poor, and at the same time lead to price fever and increased inflation...

The Ministry of Finance proposed to increase VAT to 12% from 2019 (Illustration photo: KT)

Fear of price fever, pushing up inflation

According to Dr. Luu Bich Ho, former Director of the Institute of Development Strategy (Ministry of Planning and Investment), the proposal to increase value added tax (VAT) from 10% to 12% is effective in increasing budget revenue, but consumers, especially the majority of poor people, will face difficulties, and at the same time, prices will increase and inflation will increase.

Dr. Luu Bich Ho said that the contribution of VAT to Vietnam's total budget revenue is currently more than 27%, a level higher than the EU, the region with the highest VAT rate in the world. The contribution of VAT of EU countries to budget revenue only fluctuates around 21%, while the VAT rate of this group of countries is usually around 20 - 25%.

This shows that increasing VAT is not necessarily going to improve the total revenue and budget revenue structure. The fact that countries collect higher VAT than Vietnam but have a lower contribution rate to the total budget revenue is because they have many other sources of revenue, because their production and business activities are good, and they collect more direct taxes. But it is worth noting that most of them use VAT revenue for social welfare, such as in Germany, Northern Europe, and some other EU countries, so imposing high VAT does not cause any disadvantage to the people.

In Vietnam, Dr. Luu Bich Ho analyzed that the revenue from VAT for social security activities is not much, in fact it is used to fill the deficit due to too large a deficit. I think that along with increasing revenue, we must reduce regular expenditures, if we drastically reduce expenditures, we can balance the budget. In reality, increasing VAT is a tax on consumers and people because the tax rate is the same for everyone, so we have to think about what benefits it brings to the people, not just contributing to the State.

Regarding economic efficiency, this expert stated: If VAT increases from 10 to 12%, I think it will not be seen immediately but must be seen in the later stage when there is revenue to invest and pour capital into infrastructure... As for the economic efficiency created from stimulating consumption, if consumption is considered a driving force, then in the short term it will be expensive spending, people will limit consumption more.

Regarding fairness, Dr. Luu Bich Ho said that if this policy is implemented, it will not be very fair, because the disadvantage is mostly on low-income people. This issue needs to be further considered and clarified because it is related to people's income and spending, so there must be careful investigation and calculation.

Regarding feasibility, Mr. Luu Bich Ho assessed that it would be feasible to implement the law, but regarding the feasibility of increasing taxes, the budget may not be as expected, because when consumer prices increase, a large number of consumers will limit spending, resulting in total revenue from VAT not meeting expectations.

VAT concerns "weigh down" on the poor

Mr. Do Thien Anh Tuan (Fulbright University Vietnam) commented that the proposal to increase VAT rates by the Ministry of Finance will have a comprehensive impact on more than 90 million Vietnamese people, from youth, the elderly to children, so it needs to be considered very carefully.

Unlike personal income tax, where only those with taxable income that reaches a certain threshold are subject to tax, with VAT, every Vietnamese citizen, regardless of age, gender and income, must pay tax every day and every hour.

VAT is considered a fairly successful tax in Vietnam in terms of generating revenue for the budget, Mr. Tuan assessed.

More than a decade ago, VAT accounted for only 26% of total tax revenue, 21% of total state budget revenue and aid, equivalent to 5.6% of GDP. By 2016, total VAT accounted for 33% of total tax revenue, 24% of total state budget revenue and aid, equivalent to 5.8% of GDP.

Building a tax reform project requires a comprehensive and thorough assessment framework for many issues, focusing on three aspects: economic efficiency, social equity and feasibility in management, Mr. Tuan stated his opinion.

According to Mr. Vu Thanh Tu Anh, Research Director of the Fulbright Economics Teaching Program, caution should be exercised when deciding to increase VAT. The first reason pointed out by the expert is that VAT is generally "regressive", so it will hit low-income people more heavily.

Sharing the same view, Dr. Le Xuan Nghia, Director of the Institute for Business Development Research, also said: "VAT is an indirect tax, levied directly on goods, which will of course increase the price of goods, affecting consumers. At the same time, it will have a negative impact on businesses, reducing their competitiveness."

This expert emphasized that increasing VAT will increase budget revenue and is the easiest to implement because "every sales invoice is collected", but it needs to be considered because it does not have the effect of adjusting according to income, supporting the poor, and adjusting society like direct tax./.

According to VOV