Government urged to reduce VAT to stimulate economy

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The world economy is speeding up while Vietnam’s growth is slowing down. Economists believe that the VAT (value added tax) should be reduced to stimulate demand, because it could result in immediate benefits.

Government urged to reduce VAT to stimulate economy

Small and medium sized enterprises in Vietnam account for 98 percent of total enterprises, making up 40 percent of GDP every year with 5 million jobs. They desperately need money and support to maintain operation.

Dau Anh Tuan from Vietnam Chamber of Commerce and Industry (VCCI) said the government programs aiming to help enterprises have been poorly executed and organized.

A quick survey by VCCI on 500 enterprises in August 2021 found that most support packages are ineffective and some of them are not feasible.

Regarding the tax support package (delay of tax payment and reduction of corporate income tax (CIT), personal income tax (PIT), VAT and other kinds of taxes and fees), only 35.3 percent of enterprises said the package was accessible. The high percentage of businesses unable to access the package reflects problems in implementation.

Of these enterprises, only 15.69 percent said it was easy to access the packages, while nearly 20 percent said it was ‘difficult’ and ‘very difficult’.

Only 9.3 percent of them said the support packages could satisfy their requirements, while 21.57 percent said the packages could partially satisfy them and 10.46 percent said ‘very little’.

Asked about the impact of the support packages on their operation, more than 24 percent of enterprises said the impact was at a ‘medium level’, while 7.84 percent said ‘low level’ and only 3.27 percent said ‘high level’.

Vu Tien Loc, Chair of the Vietnam International Arbitration Center (VIAC), said that tax remission, especially Corporate Income Tax, doesn’t have much significance, because enterprises don’t have to pay CIT if they take a loss. The number of beneficiaries from the CIT reduction policy is not high.

He said that a VAT reduction would have an impact on a large scale. This would help stimulate consumption, helping enterprises overcome difficulties.

Jay Roop from the Asian Development Bank (ADB) said Thailand and Vietnam have a common characteristic in that 98 percent of enterprises are small and medium enterprises (SMEs) and create 40 percent of annual GDP. These are the most vulnerable in the pandemic. The Thai Government has applied solutions to support enterprises, including a VAT reduction and a co-payment program.

The program in Thailand has helped to stimulate demand, boosting sales and improving business revenue.

Reducing taxes

Tuan from VCCI said VCCI has strongly suggested a VAT reduction. The Government reduced the VAT by 30 percent for businesses in fields hardest hit by the pandemic (tourism, transportation).

The support has been useful, but the number of beneficiaries remains modest. For tourism firms with zero revenue, the 30 percent reduction does not have much significance.

He said the VAT should be cut by 2 percent, and on a large scale, in all business fields. The solution would bring many benefits and is easily implemented.

“As both enterprises and people can enjoy preferential taxes, both demand and supply will be encouraged,” he explained.

The World Bank (WB), in its Vietnam’s macroeconomy report in December, also recommended that with the current fiscal space and the difficulties recognized, the Government should consider measures related to budget collections to support domestic demand. This could be a VAT reduction in 2022, which would support private consumption.

James Villafuerte, from ADB, stressed that in current difficult conditions, businesses need capital and support to maintain their operations. Along with monetary policies, the Government should cut taxes to stimulate demand.

Tuan from VCCI said many other countries launched big bailouts at an early stage. The world’s economy is speeding up, while Vietnam’s GDP is slowing down. Vietnam needs solutions to promptly bring direct benefits to people and businesses. Reducing the VAT is a feasible solution.

Nguyen Minh Cuong, Chief Economist at ADB in Vietnam, said the time to implement support packages for economic recovery still exists, but there isn’t much time left. He stressed that it will be too late if Vietnam begins a bailout package when other countries begin their recovery period.

Vietnam’s GDP is predicted to grow by 2 percent this year, lower than the targeted 6.5 percent.

Tran Thuy

After a rocky third quarter due to the fourth wave of COVID-19, business activities have gradually resumed to normalcy since early October in Vietnam.

Reports from the US Treasury Department reaffirming that Vietnam is not manipulating its currency for trade advantage is expected to benefit the stock and banking system.

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