Expanding budget revenues: need good policies and good management

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To implement the reform strategy on tax system and to restructure the State budget revenues in the direction of expanding the tax base. Photo TL.

This information was mentioned at the Conference on State Budget Management Toolkit: International experience and recommendations for Vietnam held on October 18th, 2018.

Expanding financial space

Vietnam is currently making an effort to reform the public system for financial management to deal with challenges such as public debts that are at a high level and state revenues that do not meet the spending requirements for development.

According to Dr. Marthew Martin, Director of Development Finance International (DFI), Vietnam needs a great financial resource to fulfil the sustainable development goals. To do this end, Vietnam needs to expand its financial space, such as the potentials to increase expenditures for development without affecting the sustainable development of the financial system as well as the economy.

Marthew Martin said that there are eight common solutions to expand the financial space, but solutions such as fiscal policy or loans for development investment are not appropriate in the context of Vietnam's attempt to control inflation and public debts that are reaching the ceiling of 65% of GDP.

"Vietnam should focus on three main areas: restructuring budget expenditures; improving the efficiency of state budget spending through transparent mechanisms under the supervision of people; and improving efficiency of state budget collection by limiting tax fraud, abolishing unnecessary tax incentives," said Marthew Martin.

On the other hand, according to the assessment report of Vietnam’s tax incentive policies by Oxfam in 2017, Vietnam’s tax incentive policies are large and common, incentives on tax exemption have longer time and larger scope than some other countries in the region. Vietnam applies relatively high tax incentives for investment projects in less developed areas or economic zones. These tax incentives can promote the transfer pricing, profit shifting and tax base erosion

"Vietnam needs to review and eliminate unnecessary tax incentives, while minimizing tax evasion and avoidance through supervision mechanisms, especially well implementing Decree 20/2017 / ND-CP on on tax administration for enterprises with associated transactions," shown on the Oxfam’s reports.

Mobilizing domestic revenues is the main solution

Notably, according to Nguyen Van Phung, Economist, Director of Corporate Tax Department, General Department of Taxation, mobilizing domestic revenues is the main solution to expand revenues. This must be based on the internal motive of the economy for sustainable development.

Moreover, in order to mobilize more revenues for the state budget, Vietnam needs to stabilize the macro-economy, create a favourable investment and business environment, promote economic development and improve economic efficiency. At the same time, it is necessary to implement the reform strategy on tax system, restructure State budget revenues in the direction of expanding tax bases, reviewing tax incentives and tax exemptions.

"In order to expand the revenues, in addition to a good policy, it needs good management. If the policy is good, but the management is not effective, it shall be not good. Therefore, it is necessary to focus on both tasks effectively, synchronously and drastically," Phung said.

Mr. Nguyen Quang Thuong, Deputy Director of the Center for Development and Integration, said that Vietnam needs to improve the efficiency of its state budget spending through transparent mechanisms.

"Currently, some budget documents have been released under the provisions of the State Budget Law in 2015. However, these documents are not detailed enough for the people and social organizations to monitor the state budget spending effectively. Vietnam should continue to improve its policies as well as publicizing the State budget.

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Dr. Vu Sy Cuong, Academy of Finance, suggested that Vietnam should study the application of new tools such as budget allocation based on results to better ensure state budget expenditures for objectives and to gain desired results to be the expected results. To do this end, the collaboration between Ministries, agencies and sectors to develop state budget plan for common development goals is essential.