Trương Bá Tuấn, deputy director general of the Institute for Strategic and Financial Policies under the Ministry of Finance (MoF), speaks to Vietnam News Agency on the MoF’s proposal to restructure the national budget.

What should be the focus of the Ministry of Finance in restructuring the State budget?

Like many other countries, Việt Nam has been facing fiscal risks, particularly mid-term and long-term risks due to overspending of State funds and skyrocketing public debt.

From the experiences of many countries, a delay in consolidating the fiscal year and restructuring the State budget may cause much harm on the national economy.

To restructure their state budgets, many foreign countries adopted comprehensive and synchronous measures to improve efficiency in using state funds while restructuring tax policies. They paid special attention to enhancing the role of potential taxes, including current tax liabilities and assets. Many foreign countries also adopted pro-active measures to tighten their control on public debts and to monitor fiscal risk management.

Can you elaborate on proposed tax changes in the budget restructuring?

Việt Nam aims to have a comprehensive plan in restructuring the State budget towards safe and sustainable public finances. The Politburo and National Assembly have adopted a number of solutions to restructuring the State budget, including State budget collection and public debt management.

The GDP growth rate is falling short of the target, coupled with a cut in tariff barriers as Việt Nam has signed many free trade deals. As a result, State budget collection in the future will be smaller than what has been projected during the development of the country’s five year financial plan (2016-2020) and the mid-term investment plan (2016-2020). That’s why it has become urgent for us to adjust our State budget collection policies right now.

Meanwhile, the pressure on financial resources for national development investment and the implementation of national targets on social security, wage reform and responses to climate change and natural calamities has become a heavy pressure on State funds.

However, in my opinion, the proposed revision of the five tax laws proposed by the MoF will have big impacts on restructuring State budge collection. Amendments to the five tax laws will make the structure of the State budget more solid while making the business investment environment more lucrative. More importantly, these changes conform to current international tax reforms.

It has been reported that there have been many problems in implementing the Law on Value Added Tax. How should the law be changed?

As I mentioned above, to restructure our State budget, we need a national strategic plan, including measures to restructure State budget collection. Adding to that is our country’s deep international integration and many international and regional countries have been slashing taxes, particularly personal income tax and enterprises’ tax in order to attract investment capital, technology and labour.

In tandem with these policies, many governments have adjusted their tax policies or been considering increasing their value added tax (VAT). In Europe, the Organisation for Economic Cooperation and Development and in Asia, VAT was already adjusted in 2008 following the global economic crisis. Such a change was an effective tool to reduce the pressure on public debt.

However, in our case, enterprise’s income tax is low compared with those in the region. Meanwhile, personal income tax in Việt Nam, in the last decade, has been adjusted downwards.

So in my opinion, I support the Government’s proposal to increase VAT. This is a good way to make State budget collection more sustainable and it will help us harmonise all relevant objectives.

Many people have complained that the proposal to increase VAT will harm consumption. How do you respond to that?

All kinds of taxes, in one way or another, will have impacts on the economy. However, the impact levels will be different depending on the characteristics and the designs of each policy.

Compared with income tax, VAT will be more effective and have less negative impacts on society’s consumption.

To reduce the burden for tax payers, particularly those who have low income, our current Law has exempted VAT on 25 groups of commodities and services and levied 5 per cent VAT on some essential commodities, including drugs/medicine and services for agriculture production. — VNS