Dr Bùi Đức Thụ, deputy chairman of the National Assembly’s Committee for Deputy Affairs, speaks to Tiền phong (Vanguard) newspaper on the  negative impacts of the rise in value-added tax on the economy. 

Do you think it is time for Việt Nam to increase value added tax (VAT)?

VAT in other countries is higher than here. For example, in European nations, the VAT rate is up to 20 per cent, so is the VAT in South America. Meanwhile, in Viet Nam, the average VAT on popular goods is about 10 per cent while the VAT levied on input agricultural materials is only 5 per cent and for export products is at zero percent. So, VAT in our country is at a low level.

Our State budget has been in a state of shortage for many years with high public debt and budget overspending. The question right now is whether to reform our tax policy. In my opinion, we should adjust our tax policies, including VAT, but not right now. We need to develop a road map for it.

Why should we not adjust the VAT right now?

There are three reasons.

First, VAT is a kind of indirect tax. It is included in the price and the consumer has to pay. Our current average GDP remains low, which means if we increase VAT, it will have negative impacts on the public. That’s why we have to consider carefully before making such a decision.

Second, this year it is projected that VAT will play an important part in the State budget. While the direct-tax component will be low, including the enterprise revenue tax, workers’ income tax, asset tax and others will all be increased. So if we decide to increase VAT, that means the people who will be affected the most will be the general public, including consumers. This is a question we should consider carefully.

And thirdly, among the 600,000–700,000 enterprises, most of them are small and medium enterprises and they face many difficulties in approaching capital, land, new technology and others. In such circumstances, if we increase VAT, this means all the burden will then be shifted on consumers as the goods price increase. And the result will affect enterprise competitiveness. I’m quite worried about it!

There is no doubt, the VAT increase will lead to some discrepancies in our current policies and no doubt will poke our national economic development. So, we need to reconsider the decision to increase the VAT.

Many people have suggested that instead of increasing VAT, we should focus on solving the problems of overdue tax and tax fraud while cutting down State spending. Do you agree?

There is no doubt our current budget collection has faced many challenges, particularly the problems of tax fraud or invasion. It is estimated tax fraud and other bad tax practices have lost a huge sum of money for the State budget. In addition, is the issue of outstanding tax debt, which is estimated at about VNĐ70,000 billion ($3.08 million). Of course, this is an aggregation of many years. Of the VNĐ70,000 billion, about a half of it could be recovered.

In my opinion, we need to review our tax-collection policy to make it fair for all taxpayers, including enterprises and individuals.

According to my observation, big businesses, including real-estate agents, make big earnings, yet their tax payments have been very small. This is a loophole in our policy that we need to fix!

What do you think of the impacts of VAT on poor and low income people?

Many people have raised this question. Some say that the VAT increase does not impact much on the poor or people on low incomes.

As I have mentioned, VAT is an indirect tax levied on the consumers. That’s why high VAT means buyers have to pay more, regardless of whether they are rich or poor. That’s why those who buy more will have to pay more VAT.

But all in all, for the poor, the increase in VAT will affect their lives. In reality, low-income people don’t have much money to save for rainy days. What they earn every month is mostly used to cover their daily expenses. Meanwhile VAT is levied on all items sold in the market. As a result, the percentage of tax that the poor have to pay is considerable compared to their earnings. So, the increase in VAT will become a problem for the poor. This is food for thought for policy makers.

Do you think VAT will have impacts on the inflation rate?

The Government’s policy on inflation rate control in recent years has been very good. The inflation rate is capped below 4 per cent. I’m confident that with the current economic recovery rate coupled with good macro policies, including the monetary policy, we’ll be able to maintain the inflation rate under 4 per cent.

If we adjust the VAT at a moderate rate, I’m pretty sure that inflation will still be under the control. But, principally speaking, the increase of VAT will make product prices increase. As a result, the VAT will become one of the factors making market prices rise. In other words, it will make the inflation rate higher.

In European countries, VAT adjustment makes market prices rise. In Viet Nam, we need to have a road map for VAT adjustment.­_VNS