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VAT reform: Four issues need to be considered carefully (04/4)
04/04/2013 - 9 Lượt xem
To
ensure a balanced revenue structure, according to a recent study of the
Financial Strategy and Policy Institute of the Ministry of Finance,
four issues need to be considered carefully before VAT reform takes
place especially when demands for VAT rate cut appear.
The
first one is to continue maintaining the role of VAT, ensuring that
this kind of tax continues to be the main tax line in the Vietnamese tax
system. Reducing the tax rate should not be done upon VAT reform in the
short and medium term as revenue from a number of sources in the tax
system, such as import and land-related tax, is expected to decrease
gradually and new sources of revenue are not yet found to compensate a
decline in this potential VAT cut.
Some
have recently suggested that Vietnam consider applying only one VAT
rate of less than 10 percent in order to stimulate consumption and
production and trading activities and contribute to lowering the cost of
tax compliance. However, according to the Financial Strategy and Policy
Institute, compliance of tax rates is not simple and requires to be
considered from different angles. On the other hand, reducing a popular
tax to less than 10 percent is not consistent with the current trend in
VAT reform in the world. If the VAT rate is reduced and at the same time
the 5 percent tax rate is abolished, this reduction and abolishment
will have a negative impact on budget revenue as well as the
sustainability of the budget revenue structure as revenues from crude
oil, sale of assets and foreign trade now tend to decrease.
The
second one is to further consider adjusting the components of the
current VAT policy in Vietnam to step-by-step approach with the
principles of the VAT reform that are recognized and compliant with
international practices.
According
to common practices in many countries, goods and services that are not
subject to VAT include the following seven groups: 1) agricultural
products and goods that are important inputs for agricultural
production; 2) passenger transport services; goods that are cultural
products; 3) aid-funded goods and activities; 4) services, especially
cultural and education services, that are provided by the state sector;
5) financial services; 6) property; and 7) construction. However, the
scope of the group of goods and services not subject to VAT in one
country could be different from that in another country and depends on
points of views related to policy making in that country.
In
Vietnam, although the number of groups of goods and services not
subject to VAT was reduced to 25 in 2009 it remains wide, making VAT
management complicated and inconsistent. Therefore, Vietnam should
consider gradually decreasing the number of goods and services not
subject to VAT.
A
number of groups of goods and services benefit from a preferential VAT
rate of 5 percent. Theoretically, the application of a tax rate that is
lower than the popular tax rate to some groups of goods and services is
usually explained from different angles, such as application of a
preferential tax rate to goods and services whose consumption is
encouraged by the State and goods and services on which low-income
consumers spend a larger part of their income.
In
a number of countries, a low tax rate is usually applied to essential
consumer goods such as food, medical products and agricultural products.
In China, while the normal VAT rate is 17 percent, a preferential VAT
rate of only 13 percent is applied to food, grain, clean water,
air-conditioners, petroleum, natural gas, books and press publications,
fertilizers and cattle feed. In Russia, the normal VAT rate is 18
percent, while the VAT subject to three groups of commodities including
essential foods, a number of product categories for children and medical
products is 10 percent. In the UK, the normal VAT rate is 20 percent,
while the VAT subject to fuel and electricity, energy efficient
equipment, environmental protection products, seats for children in
cars, and products used for weaning someone from smoking is only five
percent. In the future, Vietnam will need to check to decrease the
number of groups of goods and services subject to a preferential VAT
rate if only one VAT rate is applied according to the tax policy reform
strategy.
The
VAT in a country is subject to goods and services that are consumed in
that country. Therefore, countries apply a 0 (zero) percent VAT rate to
export goods and services. These export goods and services must be those
that are consumed outside the borderline of the exporting country. This
is why, some countries do not apply a 0 (zero) VAT to R&D (research
and development) and design activities for subjects abroad. Many
countries apply a 0 percent VAT to ocean shipping and international air
transport services and goods temporarily imported for repair and
maintenance.
The
Vietnamese VAT law applies a 0 percent VAT to export goods and services
but does not have provisions on consumption location of these exports
so there have been some problems related to imposition on a number of
services such as survey, design, construction supervision and art
performances provided abroad by people in Vietnam. Therefore, Vietnam
should add provisions on consumption location of export goods and
services subject to 0 percent VAT to its VAT law when amending this law
in the coming time.
The
third one is to apply a VAT-based income threshold to reduce the cost
of tax compliance for small and medium taxpayers, as well as tax
authorities. Unlike many other countries, Vietnam's VAT law does not
stipulate a VAT-based income threshold so all producers and traders of
goods subject to VAT must make VAT declaration and payment. This is why
the cost of collecting VAT in Vietnam is higher than that in countries
where a VAT-based income threshold is applied. Annually in Vietnam, a
large resource was spent to collect a small amount of VAT.
The
fourth one is to continue implementing relevant reform measures to
control fraud in declarations related to VAT deduction and tax refund.
To manage and control fraud in VAT refund, Vietnam can consider applying
a number of methods that are applied in foreign countries, such as 1)
to transfer the VAT that is not deducted yet to subsequent periods (with
this method, taxpayers can have the VAT refunded only when their input
VAT is not yet totally deducted at the end of the concerned period); 2)
to require auditing before tax refund takes place; to inspect invoices
and classify taxpayers; and 3) to stipulate an input VAT-based income
threshold for tax refund./.
Source: VEN
Source: VEN
