The General Department of Taxation has recently announced the collection of key taxes— such as corporate income tax, luxury tax, value-added tax, and, especially, personal income tax—has all exceeded estimates and targets, being considerably higher than in the same period last year. This news emerged when the pandemic is at its current peak in Vietnam with strict social distancing and lockdown measures implemented across the nation.
The now spreading Covid-19 pandemic is aggravating the difficult situation of both the people and the corporate sector that have already been mired in troubles.
It is undeniable that the above good news from taxmen has been giving rise to mixed opinions. Some people and companies have even deduced negative thoughts that the authorities have paid more attention to tax collection than assistance for individuals and institutions that are grappling with pandemic problems.
Some have also opined that the State should spare the people’s resources by directly cutting or waiving taxes levied on the people or businesses, such as value-added tax, which is considered a rapid, effective and easy way of assistance.
Tax authorities contend that their successful collection is due to the strong economic growth rate since the end of 2020 as well as [loosened] fiscal and monetary policies in 2020, whose beneficiaries were in such industries as the stock market, banking and the automobile industry.
Adopting an objective perspective, the author of this article reckons that complaints voiced by the people and companies about inadequate, belated and hard-to-achieve aid packages are justifiable. There is no need to prove this argument because the indifference towards these packages says it all.
At the same time, high tax payments are not from stricter collection measures, but mostly from profitable firms. Obviously, it was impossible to tax individuals and companies in difficulty (except for value-added tax, which will be further discussed below). The biggest taxpayers were businesses which posted the highest growth of sales.
Yet the path from higher tax collection value to direct and massive tax reduction is a much more complicated issue which should entail prudence and consideration.
First, State support should be taken into consideration. Compared with the lists of support given by countries in the region and in the world, Vietnam’s assistance is quite comparable quantitatively. Resolution 42 of the Government includes all kinds of support for employees, employers, business households, socially disadvantaged people and poor/near-poor households, etc.
The extension of support and new measures for supporting the people and enterprises have also been included in the latest policies issued by the Government, including Resolution 69 (supporting employees and employers with regard to social insurances and unemployment insurances), Resolution 58 (adding those subject to special allowances for fighting pandemics), Resolution 55 (cutting power prices, phase 3), Resolution 48 (adding those subject to support in fees for quarantine and Covid-19 testing), and Resolution 16 (allowances for people engaging in Covid-19 fight). There is also a variety of related decrees, circulars, decisions and dispatches by ministries and provincial governments.
As for taxes, fees and charges—in addition to policies on taxes formulated in 2020, such as extension of the time for paying taxes and tax reduction (for instance, a 30% cut for corporate tax applicable to institutions grossing sales not larger than VND200 billion in 2020)—Resolution 63 issued last month also “assigns the Ministry of Finance to the task of proposing” measures and policies on taxes, fees and charges aiming at supporting the people and businesses as well as others impacted by the Covid-19 pandemic.
However, as cited above, the results and effectiveness of these support measures (new/additional) should be verified. Take for example, the VND26 trillion aid package which has just been announced whose procedures are cut from 14 days to four days. Notably, the application, consideration, reply and disbursement mainly rely on paper and direct contact instead of being done online like in many other nations. It’s the Vietnamese way. However, this means that such a time reduction is only on… paper.
Which is why the weakness and inadequacy in Vietnam’s support policies are not concrete forms (including tax reduction/waiving), but relate to enforcement. Local governments should therefore carry out immediately and effectively the support mainly via online channels while simplifying documents (copies) to make life easier for the people and enterprises in the lockdown context. The disbursement should be principally in the form of transfers, checks or other channels appropriate to beneficiaries who do not have a bank account.
Concerning tax reduction and waiving, it is not known whether or not when implementing Resolution 63, the Ministry of Finance has proposed reduction or waiving of value-added tax. It is worth noting that the world over, by April 2020, according to the World Bank (WB), only about a dozen of countries had cut and/or refunded value-added tax, and, if any, it relates to mainly some products/sectors(1). Likewise, only a handful of countries have reported to have taken measures related to corporate income tax, such as delayed payments or extension of the time to pay tax. Fewer have actually cut this tax.
As a result, it can be said that direct reduction/waiving of taxes in general, and corporate income tax, personal income tax or corporate income tax in particular, is not common in the world. The key reason relates to the need to ensure sustainable fiscal policies in the context that budget collection from taxes would substantially plummet as economic activities stagnate because of Covid-19, which in turn adversely affects budget spending on healthcare, and economic and social affairs during and after the pandemic(2). Moreover, uncertainties caused by the Covid-19 crisis, which is unprecedented, as well as its impact on budget collection have prompted governments worldwide to exercise extreme caution when it comes to the reduction of taxes and fees.
In Vietnam, the surge in tax collection in the first half of this year versus the second half of 2020 has taken many by surprise. The increase was a result of the brisk business in the stock market, the real estate sector and the auto industry. However, what would become of these markets in the last six months of this year leaves an open question. On the contrary, it is definite that budget spending to be used to stimulate the economy in the second half will soar after the pandemic has gone wild and economic growth has decelerated.
In such a circumstance, if the Government comes up with no [immediate] reduction/waiving of taxes, inclusive of value-added tax, on a massive scale, it is understandable and excusable.
By Phan Minh Ngoc