Vietnam has with a low per capita income in Southeast Asia, but the ratio of tax revenue to GDP is very high. High taxes and fees have become a burden for people and businesses.
The tax rate on petrol prices is a clear demonstration of the tax burden on Vietnamese. Currently, gasoline and oil is subject to value-added tax of 10%, and gasoline alone is also subject to a special consumption tax of 10%, along with environmental protection tax of up to 4,000 VND/liter.
In general, taxes and fees account for more than 40% of petrol prices. Compared to China, where the per capita income is three times higher than that of Vietnam, the price of gasoline and oil is equivalent to that of Vietnam.
Currently, personal income tax is divided into seven levels, the lowest tax rate is 5% and the highest rate is up to 35%. For individuals without dependents, the income after 11 million VND/month will be taxed, and if there is one more dependent, the taxable income will increase by 4.4 million VND.
According to lawyer Truong Thanh Duc, personal income tax is designed with too many tiers, and the gap between the tiers is too wide. The high tax rate and low threshold of taxable income, and low deductions for dependents makes the burden heavier, because prices and demand are increasing.
In 2021, despite the Covid-19 pandemic causing a sharp decline in taxpayers’ income, the revenue from personal income tax still reached VND 123,000 billion, higher than 2020. The tax revenue from personal income accounted for about 8% of total budget revenue.
That’s not including excise tax and value added tax, which play the most important role in the tax burden on households in Vietnam. It is estimated that each family has to spend 6.38% of income on value added tax every year. The poor are the group that bear the most tax burden. Vietnam has a low per capita income in Southeast Asia, but the tax revenue to GDP ratio of Vietnam is high.
According to the World Bank (WB), the tax revenue to GDP ratio of Vietnam is relatively stable at 18%. However, compared with countries having the same GDP per capita correlation and other low middle income (LMC) countries, Vietnam has a higher ratio of tax revenue to GDP. It appears that tax liability, compared with income correlation in Vietnam, is at a high level compared to other countries in the world, including high-income countries.
To offset the declining import and export tax revenue, as Vietnam participates more and more in international trade agreements, the Ministry of Finance has boosted domestic revenue. Revenues from taxes associated with domestic production, business and consumption such as corporate income tax, personal income tax, special consumption tax, value-added tax and environmental protection tax are on the rise in the structure of State budget revenue.
According to the Vietnam Economic and Policy Research Institute (VEPR), since 2006, the proportion of tax revenue in Vietnam’s total budget revenue remained steady at over 80%. In recent years, this proportion has decreased to 75%, due to increased revenue from fees, charges and non-tax revenue.
The proportion of direct tax (corporate income tax, personal income tax) decreased from 44.6% in 2012 to 33.8% in 2017, but increased again, reaching 38.9% in 2019. The share of indirect taxes (value-added tax, special consumption tax, environmental protection tax…) of total tax revenue is increasing and exceeded 60% in 2016 and accounted for 11% of GDP. Value-added tax is a large source of revenue, accounting for 50% to 60% of total indirect tax revenue in the period 2006-2019.
From a macro perspective, economist Pham Nam Kim said that an economy which wants to thrive must rely on national savings, including private savings and government savings.
Savings is the main source of capital for investment, in which private savings plays a key role in promoting economic growth. For developing countries like Vietnam, where government savings are always negative, if private savings are not enough to cover the deficit, it will be forced to borrow more from outside, which will put pressure on public debt. This poses great risks to the macro economy, financial security and stability of the country. Taxes and fees are high, the savings of the private sector will be low.
Mr. Kim said it is necessary to remove the special consumption tax on gasoline, reduce environmental tax, and reduce value-added tax like other goods. The reduction of some taxes as above does not affect long-term revenue but has an immediate impact to reduce gasoline prices, curbing the risk of sharp increases in commodity prices.
Regarding personal income tax, expert Dinh Trong Thinh said that it is necessary to reduce to only three to four levels, and the tax rates should be also slashed. The taxable threshold should be raised from 11 million to 20 million VND to suit the actual situation.
With value-added tax, many argue that a 2% reduction has a negligible impact on the price of goods. For example, a kilo of meat costs 200,000 VND, and the tax rate of 10% is 20,000 VND, now reduced to 8%, which means the tax is reduced by 4,000 VND/kg.
This reduction is mild so it is not helpful to stimulate purchasing power. Value added tax needs to be reduced to 5% to be effective.