Vietnam considers slashing corporate tax despite soaring budget deficit

By July 7, 2016 | 02:19 am PT

While the government is desperate for measures to ease budget deficit, corporate tax rates might actually fall.

Despite a soaring budget deficit, Vietnam will lower taxes on corporate revenues as the current tax rate, according to the finance minister Dinh Tien Dung, is too high.

The World Bank in its Doing Business 2016 report estimated that Vietnamese firms have to set aside 39.4 percent of their profit to pay taxes.

Meanwhile, Vietnam’s revenue from taxes and levies have been recorded at 15.6 percent of the country’s gross domestic product, the government’s online news portal cited Finance Minister Dinh Tien Dung as saying.

“I must affirm that tax contributions in Vietnam are lower than that of the other countries in the [Southeast Asia] region, obviously this rate is much lower compared to the [developed] countries,” said Minister Dinh Tien Dung at a meeting on how to remove obstacles for private enterprises.

The country’s total government revenue has grown to 20.9 percent of gross domestic product (GDP) over the period of 2011-2015, compared to Thailand’s 23 percent, Laos’ 23.4 percent and Malaysia’s 24.5 percent, he added.

Bilateral and regional free trade agreements are expected to cause further losses in tariff revenues, widening the state budget deficit, Minister Dung pointed out.

The National Assembly has tried to place a cap on the budget deficit in recent years, but state budget expenditure has remained higher than targeted.

Vietnam ran an estimated deficit of VND83 trillion ($3.7 billion) from January to June this year, said the General Statistics Office.

The World Bank forecasts that Vietnam’s public debt will climb to 63.8 percent of the country’s GDP in 2016, 64.4 percent in 2017 and 64.7 percent in 2018.

In contrast, the Vietnamese government is undergoing a series of reforms to transform the private sector into the economy’s driving force, whereby lower taxes are hoped to help private companies have more funds for investment. Other measures include policies to drive up productivity growth and create job opportunities.

> Tax authorities set eyes on “Flappy Bird” creator’s bank account

> Tax incentives cause Vietnam’s public services to suffer: ActionAid

> Vietnam's 2016 growth target: 'out of reach'