Revising policies to adapt to two-way impact of FTAs

Trade promotion to boost exports, contributing to increasing state budget revenue. Photo: H.D

Two-way impact on state budget revenue

Vietnam has signed, implemented and is negotiating a total of 19 FTAs. Of these, 16 FTAs ​​have been signed and implemented and 3 FTAs ​​are under negotiation.

According to experts, the effective implementation of FTAs ​​ has helped expand and diversify markets, supply chains and export products, creating conditions for Vietnamese goods to participate more deeply in the global production and supply chain.

At the same time, it also help increase state budget revenue through indirect taxes such as value added tax (VAT), corporate income tax (CIT).

According to research by Dr. Hoang Trung Duc, Faculty of Public Finance, Academy of Finance, VAT is applied on the value of provided goods and services, therefore, when output and export value increase, the State will collect more tax from this source.

Similarly, for large exporters, profits also increase, so they have to pay higher corporate income tax. In addition, more exports also mean expanding production, increasing jobs for workers, thereby increasing personal income tax (PIT) from workers. This creates a positive cycle, contributing to the State budget revenue.

But on the contrary, one of the important commitments in FTAs ​​is to reduce or eliminate import taxes on goods from FTA partners. Accordingly, new-generation FTAs ​​eliminate about 95-100% of tax lines while traditional FTAs ​​eliminate about 70-80% of tax lines.

In addition, the new generation FTA has a faster reduction roadmap, within 5-10 years, while traditional FTAs ​​are usually 10-15 years.

For example, with EVFTA, Decree No. 116/2022/ND-CP dated December 30, 2022 on Vietnam's Preferential Export Tariff and Special Preferential Import Tariff to implement EVFTA in the 2022-2027 period has stipulated that the average preferential export tax rate for 2022 was 14.8%; 2023 was 10.1%; 2024 is 9.6%; 2025 will be 8.4%; 2026 will be 8% and 2027 will be 7.5%.

The average preferential import tax rate for 2022 was 6.3%, 2023 was 4.7%; 2024 is 3.5%; 2025 will be 2.3%; 2026 will be 1.7% and 2027 will be 1%. The number of tax lines committed to be eliminated is 11,478 tax lines.

Regarding this issue, Dr. Hoang Trung Duc said that before joining the FTAs, Vietnam collected a large amount of tax from importing goods from countries such as Japan, Korea and EU countries.

However, after FTAs ​​such as EVFTA and CPTPP came into effect, many types of import taxes were reduced or completely eliminated according to the roadmap, causing the revenue from import taxes to decrease significantly, putting pressure on the State budget to compensate for the shortfall.

Change by policy

Despite the two-way impact on the state budget, international integration is an inevitable requirement for economic development. Therefore, to cope with adverse impacts, policies need to be improved in an adaptive manner and take advantage of all opportunities that the market reality offers.

According to Ms. To Kim Hue, Institute of Strategy and Financial Policy, to partially offset the reduced revenue sas well as contribute to creating sustainable revenues, many countries have adjusted other tax policies such as personal income tax, corporate income tax, VAT, real estate tax, environmental protection tax during the implementation of tariff commitments.

Therefore, Ms. Hue believes that Vietnam needs to increase sustainable trade turnover to increase tax revenue at the import stage, while continuing to reform the tax system synchronously.

In addition, it is necessary to review and adjust the shortcomings in tax policies to ensure compliance with the provisions of the commitments, aiming to focus the state budget revenue on domestic revenue to stabilize the budget in the long term.

For example, a recent issue of concern is the collection of taxes on small-value goods through cross-border e-commerce platforms.

According to Prof. Dr. Hoang Van Cuong, National Assembly deputy of Hanoi city, re-collecting taxes on imported goods with a value of less than VND1 million V is appropriate, because the quantity of these goods on the market is currently very large, while collecting import taxes will help increase competitiveness for domestic products, and control the origin, source and quality of the imported goods.

In addition, economic expert Assoc. Prof. Dr. Dinh Trong Thinh also recommended that there should be preferential policies on taxes, fees, and charges to help businesses digitize, green, and develop a circular economy to meet the requirements of sustainable development in many major markets, thereby boosting exports.

Regarding imports, there should be measures to monitor the quality of goods and avoid counterfeit and fake goods.

In the policy recommendation for the third quarter of 2024, experts from the National Economics University also said that the Ministry of Finance should consider continuing to review legal documents related to financial and tax policy management, etc to help increase the transparency and effectiveness of related activities.

Therefore, in the project "1 law amending 7 laws" on the financial sector, which is being submitted to the National Assembly for consideration and approval, the provisions of the Tax Administration Law are being proposed to be amended in the direction of creating resources for socio-economic development through expanding the tax collection base, preventing tax losses, especially e-commerce activities and digital-based business.