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Last updated: Thursday, December 13, 2018


Property Tariff Necessarily Formulated

Posted: Thursday, October 05, 2017

At the recent Vietnam Finance Forum 2017 in Hanoi, many economists pointed out that it is time to reform the national financial system and focus on tariffs such as added value (VAT) and commodity tax to ensure a sustainable source of funding.

Squeezing public spending
Finance Minister Dinh Tien Dung said that Vietnam's public finances have been fundamentally reformed towards transparency and efficiency following the amendment and promulgation of new frame laws. For example, the Law on Charges and Fees 2015 shifts some fees into pricing mechanism, thus encouraging investment for production and business development, foreign trade expansion, rational and sustainable growth, and budgetary revenue balancing.

However, under macroeconomic reform pressure, national budget revenue is at risk of falling short for rebuilding socioeconomic infrastructure. Such burdens as public debt above the upper limit, irrecoverable construction debt and ineffective loan management and use are requiring the financial sector to have strategic calculations to ensure financial takings in the coming period. Accordingly, the Ministry of Finance will step by step restructure state budget expenditures in order to increase the share of investment and reduce the share of recurrent expenditures at the back of vigorous reform of the public service sector, reform State budget expenditure, improve the efficiency of budget spending and carry out result-based budget management.

Deputy Finance Minister Do Hoang Anh Tuan said that it is time for Vietnam to have radical solutions to reduce public debt and ease budget tensions, stop the augmentation of recurrent expenditures, and concentrate resources for development. Currently, public investment accounts for a relatively high rate of 8 - 10 per cent of the gross domestic product (GDP) but it is ineffectively used. ODA-sourced public investment accounted for 10 - 15 per cent of total investment. Most key projects in the country are funded by official development assistance (ODA). Domestic capital invested in key transport sector does not exceed 2 per cent. These percentage proportions force stakeholders to have more reasonable calculations in order to have a reasonable collection and spending regimen.

Taxing properties
“We need to tax properties,” said Dr Nguyen Thanh Long, Chairman of the Board of Directors of the Hanoi Securities Exchange (HNX), adding that authorities should soon study and apply property tax in accordance with international standards. This globally popular tax is a source for local authorities to mobilise more funds for infrastructure development investment. He cited reports by E&Y as saying that indirect taxes in countries in the Organisation for Economic Co-operation and Development (OECD) and in Europe account for 50 - 60 per cent of State budget revenue. In China, the rate nearly doubled, from 33 per cent in 2004 to over 60 per cent in 2016.

In addition to studying the increase of indirect taxes, it is also necessary to further improve direct taxation policies to ensure equity. If the government can reduce the above tax, it will be financially leveraged investment and support business growth, especially small and medium enterprises, said Long.

Sebastian Eckardt, Lead Economist of the World Bank (WB) for Vietnam, said the global trend is shifting from income tax to consumption tax. Current taxes still have the room to go up, for example sin tax - excise tax specifically levied on certain goods deemed harmful to society. Meanwhile, the standard VAT rate of Vietnam is still as low as the bottom of the region. In addition, corporate income tax must be narrowed due to investment incentive policies. And, it is important for the Government of Vietnam to develop a regular tax policy on land and property at local levels in the current context.

Anh Phuong

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