The Ministry of Finance has issued a report guiding the amending and supplementing Law in a few of articles of the Law on Value Added Tax (VAT)
The Ministry of Finance said that during the implementation of the Law on Value Added Tax, many obstacles to non-taxable objects such as fertilizer, machinery and agriculture equipment and offshore fishing, land use rights make it difficult for enterprises and tax administration.
"The normal tax rate of 10% is relatively low, inconsistent with international practices and difficult to ensure national financial security," the Ministry of Finance said.
Some goods and services such as clean water; cultural activities, exhibitions, physical training and sports; art performance ; film production; importing, distributing and screening films ... have been strongly socialized but still subject to VAT at the rate of 5%. It is not equal to other industries and sectors which are subject to VAT at the rate of 10%.
The regulation on the application of 5% tax rate for multi-purpose commodities, such as: nets, ropes and fibers for fishing nets; specialized equipment and tools for teaching, researching, scientific experiments ... lead to inconsistency in implementation.
For remission of VAT, not only the non-refundable tax regulations for "export products are goods made from natural resources and minerals with the total value of resource, minerals and energy costs accounted for 51% or more" complex in the implementation but the non-refundable tax regulations for the case of continuous negative VAT invoices over many periods also makes enterprises more difficult due to increased tax costs.
Therefore, the Ministry of Finance proposed to raise the VAT rate in two options.
- Option 1, Ministry of Finance proposes to increase from 10% to 12% as from January 1 st, 2019.
- Option 2, the Ministry proposed to increase according to the roadmap to 12% from January 1st, 2019 and 14% from January 1st, 2021. Of which, the Ministry of Finance proposed to consider option 1.
"High indebted countries often increase indirect taxes"
International experience has shown that in the context of rising public debt in countries including in developed countries, they tend to restructure state revenues in the direction of increasing revenues from indirect taxes, "the Ministry of Finance said.
In order to increase revenues to compensate for decreased revenues due to reduced income taxes, countries are turning to higher consumption taxes called VAT and excise taxes.
"The number of countries applying VAT / excise tax on goods and services has gone up and up, about from 140 in 2004 to 160 in 2014 and 166 in 2016," the report said.
Because of increasing the number of countries using VAT to regulate consumption as well as increasing revenues, the tendency to increase VAT rates is common.
The report of the Ministry of Finance also cited the evidence from 2009 to 2016. All countries increased the common tax rate. The average tax rate in EU countries in 2000 was 19%, and by 2014 the average tax rate was approximately 21.5%. OECD countries also tend to increase the VAT rate from an average of 18% in 2000 to about 19% in 2014 and over 19% in 2016.
Asian countries such as the Philippines, India and Japan also tend to restructure their revenues in the direction of increasing the share of consumption tax in total revenue from increasing VAT rates.
"The tax rate’ statistics of 112 countries, 88 countries have a tax rate form 12% to 25%, of which 56 countries have a tax rate form 17 to25%, the remains are more than 10%. Neighboring countries such as Laos, Indonesia and Cambodia also have a common tax rate of 17% and a preferential rate of 13% while the Philippines has a tax rate of 15%. " The data from the World Bank cited by The Ministry of Finance.
Recently, the Ministry of Finance has also proposed to increase the excise tax of the consumption including soft drinks, cigarettes, tea, bottled coffee, etc.