Vietnam's finance ministry rejects taxi association's call to slash VAT

March 14, 2017 | 06:38 pm PT

Ride-hailing apps like Uber and Grab are allegedly eating into the profits of taxi firms.

Vietnam’s finance ministry has turned down a request made by local taxi companies to lower taxes to form a fair and competitive environment in the ride services market.

The Taxi Association of Ho Chi Minh City had previously sent a proposal to the ministry asking for its VAT duty to be slashed from 10 percent to 5 percent so that traditional taxis can compete with foreign ride-hailing services like Uber and Grab, which are subject to a 3 percent rate.

In response to the taxi association, the finance ministry claimed that it is following a tax reform plan which will gradually apply a 10 percent VAT fee on nearly all types of goods and services by 2020. Only essential goods will be subject to the lower rate of 5 percent, while exports will be exempt from this duty.

The finance ministry's decision comes at a time when Vietnam is facing declining tax revenue in the wake of a dozen free trade agreements. The government has also come under pressure to deal with growing public debt, estimated at 64.73 percent of the country's gross domestic product at the end of 2016, and close to the 65 percent ceiling set by legislators.

In terms of the alleged higher taxes and fees traditional cabs have to pay, the ministry said that this conclusion is totally “without foundation”.

They cited figures showing that most major taxi firms in Ho Chi Minh City are paying corporate income tax rates of 0.01-0.06 percent, and some are even receiving rebates. Meanwhile, a 2 percent rate is currently applicable to mobile ride-hailing services.

Uber and Grab entered the Vietnamese market three years ago to provide transportation services via mobile apps.

Grab, a Malaysian-based company, is the only foreign-run transport service allowed to operate in five cities across Vietnam using registered private vehicles between 2016 and 2018.

Uber, however, has been singled out for providing ride-hailing services without legal permission.

The growing popularity of the two services has led to a fall in profits for traditional cabs, by at least 10 percent last year in Ho Chi Minh City, according to the association.

> Unfair competition with Uber, Grab prompts Vietnamese taxi firms' revenues to dip