VietNamNet Bridge – The 2012 report about the national economy just released by the National Assembly’s Economics Committee, has pointed out that Vietnamese people have been burdened with taxes and fees, and that a lot of the policies pursued by Vietnam do not follow the common tendency in the world.

High taxes annul development

The report has pointed out that Vietnamese businesses now have to bear high tax rates, because of which they cannot accumulate strength for re-investment. This is also considered one of the most important reasons which prompt enterprises to make the transfer pricing.

Regarding the personal income tax, while Vietnamese people’s taxable income is lower than Chinese and Thailand, but they have to bear the tax rates higher than Chinese and Thailand.

With the income of 3451-5175 dollars a year, Vietnamese people would be imposed 10 percent in personal income tax. Meanwhile, in Thailand, the 10 percent tax rate is only imposed on those with the annual income of 4931-16,434 dollars. The figures are 3801-9500 dollars in China.

At present, the 25 percent corporate income tax is being applied to the majority of businesses in Vietnam, much higher than that of other countries which impose 2-30 percent.

Vietnam also imposes other high taxes as well, including the special consumption tax (luxury tax) and import tax. Especially, they also have to pay under-the-table expenses to obtain contracts. Citing a recent survey, the report has said that 56 percent of enterprises which joined the bids for the projects funded by the state budget said they have to “pay commissions” to obtain what they want.

Economists have also agreed that the ratio of tax collection on GDP in Vietnam is now overly high, which makes it unable for businesses to accumulate money for re-investment.

The high taxes also prompt businesses to commit tax frauds, including the so called “transfer pricing” which has been found at many foreign invested enterprises. The foreign direct investment sector makes up 20 percent of GDP, but it accounts for 10 percent of the total tax collection of the state budget.

The economists believe that since the corporate income tax rate in Vietnam is higher than that in regional countries and the world, FIEs have been trying to conduct the transfer pricing, declaring wrong income in Vietnam to be able to pay lower tax.

A report by the Ministry of Finance showed that in 2007-2011, the gross of collection to the state budget from different sources accounted for 29 percent of GDP. However, if counting on the income from taxes and fees, the figure would be higher, at 26.3 percent of GDP.

Pham The Anh from the Hanoi Economics University, a member of the team making the report, said Vietnam’s collection from taxes and fees, not including crude oil, is very high if compared with other countries in the region.

In recent years, China has the ratio of collection from taxes and fees on GDP at 17.3 percent on average. The figures are 15.5 percent for Thailand and Malaysia, 13 percent for the Philippines, 12.1 percent for Indonesia, and only 7.8 percent for India.

In conclusion, with the protection policies, overlapping taxation and the “two-digit inflation tax,” every Vietnamese person now bears the ratio of tax on GDP higher by 1.4-3 times than in other regional countries.

The economists have also pointed out that there are three main sources of income for the state budget, including the VAT tax collection, corporate income tax, import-export tax and luxury tax on imports. The problem here is that the proportion of the income from corporate income tax in the total income--has decreased gradually from 36 percent in 2006-2008 to 28 percent in 2009-2011.

Once Vietnam relies on the import-export, it would suffer the budget deficit in the near future, when Vietnam, under the WTO commitments, would have to cut import tariffs

DNSG