VAT in Vietnam is lower than the regional and world average rate

	​Ministry of Finance proposes to raise VAT to 11% from 2019
	Modernization of the tax system: Integration and innovation
	Exported goods as unprocessed natural resources and minerals not subject to VAT

The VAT rate in Asia is 10.9%. Hong Van Photo.

Voters from Ho Chi Minh city, Da Nang, Ba Ria Vung Tau, Binh Duong, Thai Binh and Hau Giang have submitted a series of suggestions to the National Assembly to express their concerns about the proposal on increasing many taxes, including VAT.

The voters suggested that the proposal on raising VAT at this time is not suitable because the consumers, regardless of whether they have high or low income must all pay the same VAT for the same taxable product. As a result, the tax burden on consumer goods always accounts for a higher proportion of the income of low-income people.

Under the voters' anxiety, the Ministry of Finance said that VAT is an indirect tax on consumer goods and services in Vietnam and currently has been applied by nearly 170 countries.

The current VAT Law stipulates 3 tax rates: 5%, 10% and 20% (excluding the VAT rate of 0% applicable to export goods and services). In the context of difficult economy, in order to support businesses and people, from 1st January 2004, the law stipulates only two tax rates: preferential tax rate of 5% and common tax rate of 10% and tax rate of 0% for export goods and services.

Meanwhile, according to the statistics on VAT rates of 112 countries, 88 countries have the tax rate from 12% to 25% (of which 56 countries have the tax rate from 17% to 25%), the remaining 24 countries have tax rate of more than 10%. The average tax rate by region is as follows: The average global VAT rate is 16%; in Asia is 10.9%; The European Union is 21.5%; Central Europe and Russia is 18.6%; America is 14%.

Ministry of Finance confirmed that the VAT rate in Vietnam is lower than the regional and world average rate.

In order to raise the proportion of domestic revenue and reasonably regulate between indirect taxes and direct taxes, the Ministry of Finance has proposed a roadmap to increase the VAT rate from 10% to 11% in 2019 and increase up to 12 % by 2020.

According to the World Bank, the proposal to increase the VAT rate to 12% will increase the CPI in the range of 0.06-0.39%, so inflation due to increase in CPI at this low level is not a concern. However, if we maintain a lower VAT rate, this will benefit the rich more than the poor because 20% of the poorest households pay only about 9% of the total VAT revenue. Meanwhile, 20% of the richest household must pay nearly 40% of the total VAT revenue. This means that if a poor household saves an average of VND 10,000 because of low VAT rate, a rich household may save VND 40,000. Therefore, the low VAT rate will benefit the rich more than the poor.

The Ministry of Planning and Investment also considered that with the proposal on raising the VAT rate by 2%, it would increase the CPI by 2.28% and reduce the GDP growth by 0.5%.

According to the Ministry of Finance, to minimize the impact from tax increase on low-income people, the Government should continue to financially support the social security and welfare, such as with education, health, infrastructure, etc., so that additional VAT revenues can benefit more than the additional amount of tax they must pay.

At present, the Government has supporting policies such as electricity allowance for poor households and allowance under social policies is 49,000 VND / month; support to build houses for poor households and social policy households; support for single people, elderly people in poor households, elderly people without social insurance, disabled people with an amount from VND 180,000 to VND 720,000 per month; policy to support health insurance for the poor, children under 6, the near-poor, students; free tuition for ethnic minority students from poor and near-poor households in vocational education and higher education institutions and many other social welfare policies.

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The above proposed amendment to the VAT Law is in the process of consulting ministries, sectors localities, business associations and the people. Accordingly, the Ministry of Finance will receive and explain comments, then submitting them to the assessment agency and reporting them to the Government for submission to the National Assembly to include in the program on amending law according to the provisions of the Law on promulgation of legal documents.