Think tank warns of negative impacts of Vietnam’s VAT hike plan

Thursday, 2018-06-28 17:10:27
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Higher VAT would reduce household income and spending.
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NDO - The Vietnam Institute for Economic and Policy Research (VEPR) has warned that the Ministry of Finance’s plan to raise the rate of value added tax could reduce the welfare of all Vietnamese households while not increasing the real output of the economy.

The think-tank said the conclusion was based on two scenarios.

In the first scenario, the current VAT rates of 5% and 10% will be raised to 6% and 12% respectively, while in the second scenario, a universal VAT rate of 10% will be levied on all goods subject to this tax.

According to Dr Nguyen Viet Cuong from the National Economics University, the first scenario would have a larger impact on household spending, leading to a decrease of 0.89%, compared with a 0.32% reduction as seen in the second scenario.

Poverty rates would subsequently rise by 0.26 and 0.22 percentage points in the respective scenarios.

He stated that those hardest hit by the VAT increases would be households living near the poverty line, households with many elderly and child members and households whose breadwinners are low-skilled.

Under both scenarios, government revenues would increase but the real economic output would not follow in the same direction and could even fall by 0.13% in the second scenario.

Therefore the VEPR advised that the government should carefully consider the full implications of the VAT hike plan because it would raise revenues at the expense of economic growth and poverty reduction.