Former Director Nguyễn Bích Lâm. Photo baochinhphu.vn

The Government issued a resolution in May, which has been submitted to the National Assembly for approval, to cut value-added tax (VAT) by 2 per cent to boost domestic consumption.

Nguyễn Bích Lâm, former director of the General Statistics Office of Vietnam, speaks to Vietnam News Agency about the supportive tax policy.  

In May, the Government tabled a bill in the National Assembly to cut VAT by 2 per cent. Can you elaborate further on its scope and effective date?

The bill, Resolution No.72, would apply to the categories of goods and services subject to a VAT rate of 10 per cent. That means those subject to a rate of 5 per cent would fall outside of its scope.

With such a broad range of effects, the bill covers almost all the categories of goods and services in the manufacturing, construction, and service sectors. 

The bill is slated to come into force in the last six months of 2023 and is expected to provide a huge stimulus to domestic consumption.

Do you think the VAT cut of 2 per cent is necessary in the current economic context?

Over three years, the COVID-19 pandemic has dealt a heavy blow to the global economy by sapping aggregate consumption.

In Việt Nam, the personal consumption expenditures in 2022 fell by 3.3 per cent compared to 2020. Consumers in rural areas cut back on spending by 13.6 per cent during the period. 

The impact of the pandemic was still felt in Q1/2023, with the country's final consumption expenditures growing by just 3.0 per cent year-on-year, the lowest growth rate between 2015 and 2023. 

In the face of such weak domestic demand, a VAT cut of 2 per cent in the second half of 2023 is essential to stimulate spending and accelerate the economy's recovery.

How would the VAT cut impact firms, the State Budget, and economic growth?

The stimulus will not come at no cost. An estimation from the Ministry of Finance says the State Budget would suffer a fall in revenue of VNĐ35 trillion (US$1.5 billion) due to the VAT cut, equalling 2.6 per cent of the projected total fiscal revenues in 2023.

However, the cut would give a huge boost to aggregate consumption and improve firms' sales. Better-off firms, in turn, can create more jobs for the economy and improve the tax base for the State Budget in the long term. 

GDP growth is expected to rise by 0.8 per cent on the grounds of the cut, of which 0.64 per cent would come from its direct effects on final consumption and 0.16 per cent from its spillover effects.

It is also worth noting that the tax policy might not work out as expected unless other policies are implemented in harmony with it, especially unemployment, inflation, and social security policies.

What policies have the Government implemented recently to deal with the economic slowdown?

In the first four months of 2023, the Government implemented a wide range of monetary and fiscal policies to push economic recovery.

The Government issued Decree No.12 on April 14 to cut land leasing rates and some other relevant duties on firms. The fiscal package initiated by the decree stands at over VNĐ198 trillion. On April 21, the Government proceeded with Resolution No.58 to double its effort to reinvigorate the business sector. 

Regarding monetary policy, the State Bank of Vietnam (SBV) cut key rates on March 15 to pump liquidity into the economy, making Việt Nam the first country in Southeast Asia to take an expansionary monetary stance amid the benchmark hikes by FED and ECB.   

On April 23, SBV pushed ahead with its supportive stance by enacting Circular No.02 on debt rescheduling and Circular No.03 on corporate bonds. The two circulars have provided commercial banks with much-needed instruments for dealing with real estate loans and corporate bonds.

Favourable policies have been put well in place. What else does the Government have to do to ensure the policies produce the desired effect?

To ensure the policies be implemented properly and produce the desired effect, the Government has to improve the accountability in local authorities and take tough actions against the blame-shifting and responsibility-shirking by some incompetent public officials.   

Regarding the VAT cut, the Ministry of Finance must quickly ensure all the legal documents related to the bill be submitted to the National Assembly in May so the legislative body can pass the bill early. The Ministry also has to step up tax reforms to streamline tax collection and keep illegal practices in check, including tax evasion and price transfers. — VNS