Vietnam Embraces Consumption Society With Higher VAT

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By Lien Hoang

Vietnamese shoppers are busier than ever. To keep up, the communist government plans to raise special consumption and value-added taxes and cut taxes on small businesses.

In the biggest tax shakeup in years, the Finance Ministry has proposed a string of changes to adapt to a transforming economy, including a VAT rate of 12 percent, up from 10 percent. In an Aug. 15 post, the ministry also recommended a new soda tax, higher duties on cigarettes and trucks, and a corporate income tax of 15 percent for businesses with revenue of 3 billion Vietnamese dong a year or less and 17 percent for those earning between 3 and 50 billion dong ($2.2 million). The standard tax is 20 percent.

The ministry provided a list of motivations behind the overhaul, primarily “to achieve the overall restructuring of the economy” and move in the direction of “production and consumption.”

Conspicuous Consumption

As Vietnam enters the fourth decade of its transition to a capitalist economy, consumption is becoming more conspicuous, from the explosion of craft breweries, to the arrival of global brands this year like H&M and 7-Eleven. Consumer spending should rise 4.5 percent in 2017, according to Infocus Mekong Research.

“We have been seeing this regularly put forward in many countries: pushing the country to a more consumption/broad-based tax,” Matthew Lourey, managing partner of accounting firm Domicile Corporate Services, told Bloomberg BNA by email Aug. 17.

At the same time, the finance ministry wants to wean companies off tax incentives, saying it would pare back the list of goods and services that enjoy zero or 5-percent VAT.

Wolfram Gruenkorn, managing lawyer at Gruenkorn & Partner Law, told Bloomberg BNA by email Aug. 18 that he expects the higher VAT could encourage more tax dodgers to “conduct their business outside the legal framework.”

Yet Lourey said tax evasion, including through transfer pricing, could decline as corporate rates fall and public coffers rely more on consumption than corporate taxes.

Protecting People, Health

Starting in 2019, a soda tax would be levied at 10 percent, and the cigarette tax would increase to 75 percent from 70 percent. A year later, Hanoi would tack on a special consumption tax of 1,000 dong per pack of 20 cigarettes and 1,500 dong per cigar.

Pepsi declined to comment except to tell Bloomberg BNA in an Aug. 18 email: “We will work with the related associations where we are a member.”

“It’s easy to explain to the public why they introduce the tax—they want to protect the people, they want to protect the health,” said Nguyen Thi Kim Anh, senior associate at law firm VILAF.

Another consumption tax would subject pickup trucks to 60 percent of the tax rate owed on passenger cars of the same horsepower. A Ford spokeswoman told Bloomberg BNA Aug. 18 that these trucks help enterprises, with 70 percent sold to businesses and organizations and a share of the remaining 30 percent going to family businesses.

Toyota and Nissan said they wouldn’t be able to comment by press time.

To contact the reporter on this story: Lien Hoang in Ho Chi Minh City at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

For More Information

The Finance Ministry's tax proposals are at http://src.bna.com/rNk

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