Digitalization at stake

Digital transformation is regarded as a priority for the country in the age of the Fourth Industrial Revolution, but on the path to realizing such a goal, there are lots of impediments and hiccups.

To this effect, a tentative proposal by the HCMC government recently sent to the Ministry of Finance to “expand the tax base and fight erosion of the State budget revenue” bucks the trend of digitalization, regrettably and surprisingly.

In its feedback to the Finance Ministry’s tax collection scheme, the municipal government suggests that the ministry impose the special consumption tax on many more items, especially cell-phones, surveillance cameras, and beauty products and services. Such a proposal arouses stiff objection from far and wide, as seen in local media these days.

In its proposal, the city government reasons that smartphones, surveillance cameras, perfume, and beauty products and services should be subject to the special consumption tax, or excite tax, so as to collect more from high-income earners for the State budget, according to Lao Dong. While cell-phones are not categorized as luxury items, such products are also non-essential items, and therefore, the excite tax will help check consumption. Similarly, perfume and beauty products and services are deemed luxury and non-essential items, and the tax should apply to well-to-do consumers.

The proposal has instantly backfired, however.

“Imposing the excite tax on cell-phones should not be the right thing, since it will have huge negative impact, especially under the context of the digital economy now,” says an expert with the General Department of Taxation in Tuoi Tre. Smartphones are not luxury items, and slapping the tax will restrict the people’s access to a product essential for their living, says the expert.

Nguyen Thai Son, another expert with the General Department of Taxation, furthers in the paper that the excite tax is meant for those products that are either luxurious or harmful to human health, or those items whose consumption is discouraged, so as to check consumption rather than to boost revenue for the budget. Meanwhile, “cell-phones and surveillance cameras are popular items and their use is encouraged,” Son is quoted as saying.

On the news site zing.vn, Lawyer Truong Thanh Duc with the law firm Basico seconds the argument, saying the excite tax is only meant for luxurious or harmful products, or products whose consumption needs to be controlled. Beyond such a range, only the value-added tax should apply. Therefore, “the proposal is baseless,” Duc is quoted as bluntly saying.

The lawyer explains that if the excite tax could apply to cell phones or cameras, then by that principle such a tax could also apply to any other product or service used daily by the people. In practice, it is better to have more products and services exempt from this tax so that the economy can grow better, he suggests in the media outlet.

Commenting on an argument in the proposal that the excite tax should apply to regulate the personal income among certain wealthy people, Duc says such a move should fall within the scope of the Law of Personal Income Tax, not the Law on Special Consumption Tax.

The rationale behind the proposal, says Lawyer Duc in VnEconomy, is abnormal, and is only harmful to economic growth.

Citing representatives of cell-phone traders and telecom units, VnEconomy says that should the proposal move forward, it would restrict sales of cell-phones on one hand and impede economic growth on the other. “It will put the brakes on consumption and adversely impact retailers and manufacturers,” says the news site.

Similarly, vov.vn, the news site of the Voice of Vietnam radio station, says the proposal if actualized will impede the demand for communication due to the higher price of cell-phones, which will translate into a major hurdle for socio-economic development.

 

Objection to the proposal also centers on adverse impacts on the country’s digital transformation.

The news site vov.vn says the Government and relevant State agencies are calling for solutions to develop smart consumption, including non-cash payment services. Responding to this trend, many banks, credit entities and retailers have invested hugely in digital infrastructure to encourage online transactions, which largely depend on the increasing use of cell-phones.

Vnexpress.net says cell-phones help open the door for the people to access the Internet, which is a huge treasure of knowledge, and help bridge the gap of development between countries in the world. A cell-phone with multiple functions also helps open the door to international integration, but the proposal to slap excite tax on this handheld device will slam shut that door, according to the news site.

Citing lawyer Tran Xua, director of the law firm Dang Minh Quang, Thanh Nien also says the cell-phone is a popular device for various business transactions, including non-cash payment, which is a policy advocated by the Government and the central bank. A greater benefit when non-cash payments are promoted is that relevant authorities will be able to keep a close watch on business transactions in the economy, and therefore, “such a huge benefit should not be sacrificed for a slight increase in revenue for the State budget from the excite tax on cell-phones,” the lawyer is quoted as saying.

The lawyer also criticizes the inclusion of surveillance cameras in the proposal, saying such devices should be installed more nationwide to enhance social security and help law enforcement agencies to retrieve images of possible crimes.

The proposal even contradicts the development goal of the city itself, says Do Hoa, director of a consulting firm, in Thanh Nien. “The day earlier, the city’s leadership vowed to step up the smart city model, and today, they move backward to discourage smart phones and cameras, which are crucial for a smart city,” he says in the paper.

The paper also stresses that the proposal goes against the digital orientation by the Government. At a review meeting for the first quarter, Minister of Information and Communications Nguyen Manh Hung instructed the Telecommunications Department to map out a strategy for the sector, with a key goal being to raise the smart phone penetration rate so that most of locals will have this mobile device by 2020.

Lawyer Chau Huy Quang observes in Thanh Nien that the proposal may also infringe on international conventions.

“The excite tax management is part of Vietnam’s commitments to the World Trade Organization, and Vietnam must ensure that this tax policy is aligned with international practices,” says the lawyer, adding cell-phones and cameras are not classified for this tax in the world.

The proposal, therefore, is unacceptable, says Ngo Tri Long, an economic expert, in VnEconomy.

Given the widespread objection from the society, and given the disagreement from several experts with the Ministry of Finance, it is highly likely this proposal will be shelved. Otherwise, the country’s drive of digital transformation will be at stake. SGT

 
 
 
 
 
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