On May 17 of this year, the Prime Minister issued Decision No 732/2011/QD-TTg, approving a 10-year tax system reform strategy through 2020 with ambitious targets for both renewing the tax system and accelerating reforms of tax administration.
The changing socio-economic situation in Viet Nam over the next decade will greatly impact the realization of this tax reform strategy. That Viet Nam has just emerged from the list of poor countries will result in a considerable reduction of foreign aid resources, including aid for human resources development. The fulfillment of all bilateral and multilateral international commitments and full opening of the domestic market will reduce revenues from exports, putting further pressures on State budget revenues. Global warming, climate change, and the depletion of natural resources are factors greatly affecting development which must be taken into account in tax reform strategy.
The primary objectives for the 10-year tax reform strategy are to build a coordinated, unified, fair and efficient tax system suited to a socialist-oriented market economy, one that gives an effective macro-economic management tool to the Party and the State to boost domestic production.
Tax revenues during 2011-15 will be maintained at 23-24 per cent of the GDP. In the subsequent five years (2016-20), the rate will be lowered on goods or services in order to encourage competition and capital accumulation.
For tax administration, the strategy sets objectives of building a modern and efficient tax sector that makes the administration of taxes, charges and fees unified, transparent, simple to understand and feasible, based on three foundations: (i) transparent tax policies and simple and systematic procedures that conform to international practices; (ii) quality human resources that are free of corruption; and (iii) application of modern information technology.
By 2015, at least 60 per cent of enterprises will use electronic tax services; 50 per cent of enterprises will register and declare taxes online; and 70 per cent of taxpayers will be satisfied with the services provided by tax offices. These targets are expected to be higher in the subsequent five years (2016-20).
The reformed tax system must guarantee reasonable tax revenues, boost production, increase the competitiveness of goods and services, promote export and investment, particularly investment in high technology and in regions facing difficult socio-economic conditions.
Tax policies must exert positive impacts on economic restructuring and job creation, ensuring sustainable economic growth, contributing to stabilizing and improving the quality of life of people and meeting the demands for reasonable State spending levels.
Tax policies must ensure transparency, clarity and feasibility. The tax base must be expanded to develop revenue sources while lowering the overall rate of taxation on each unit of goods or on income, helping increase domestic revenues (excluding revenues from crude oil) to over 70 per cent of the total State budget revenue by 2015 and over 80 per cent by 2020.
The strategy will include 10 major types of taxes, charges and fees: value-added tax; excise tax; export and import duties; corporate income tax; personal income tax; royalties; agricultural land use levies; non-agricultural land use levies; environmental protection tax; and charges and fees.
Compared to the strategy in the previous 10-year period, the 2011-20 tax reform strategy will have two salient points: changing the licensing fee into an annual fee for business management; and perfecting regimes and policies on State budget revenues from natural resources, such as collection of land use levies and revenues from mineral and oil rights.
Together with the accelerated administrative reforms, it is necessary to proceed with the reform of public finance towards clear definition of functions and tasks of budget-funded units. The policy on privatising public services will be further carried out, which requires changes in the collection of taxes and fees for public services so far provided by the State. During 2011-20, the Law on Charges and Fees will replace the existing Ordinance on Charges and Fees and the license tax converted into an annual fee for business management.
In the next decade, the Vietnamese economy will remain far behind the leading ASEAN economies. Though per-capita income will see relatively high growth, taxes on economic activities will continue to be mostly indirect and based on consumption.
The value-added tax will play a major role with broad impacts on every citizen, especially when the economy is restructured toward reducing the agricultural ratio and raising the industrial and service ratios. Without being increased, VAT revenues will increase in both amount and in their ratio to total overall tax revenues.
The Law on Royalties, newly promulgated in 2009, should be further revised toward ensuring that royalties are an effective tool to manage, protect and promote the efficient use of national resources, particularly non-renewable resources. Royalty rates must be low enough to boost the exploitation of natural resources but high enough to restrict waste and excessive export of unprocessed minerals.
As natural resources are under the ownership of all the people, suitable policies related to the assignment of rights to explore for and exploit resources are also needed. Tax laws must be made consistent with the laws on petroleum, water resources, minerals and forest protection and development. Policies must encourage the use of renewable natural resources while reasonably limiting and regulating the exploitation of non-renewable resources and stimulate the use of substitutes for these resources.
During 2011-20, the policy on land-related revenues will be revised to ensure its consistency and conformity with amendments to the Land Law. Regulations will be issued to implement National Assembly Resolution No 55/2010/QH12 of November 2010, on exemption from and reduction of agricultural land use levies, as well as the Law on Non-Agricultural Land Use Fees. Further study is needed to find means to encourage more efficient land use. Tax incentives will be granted for the use of land in regions hit by difficulties or in remote areas, while higher levies will be imposed on urban uses. Property taxes will be applied to homes and improvements of great value at an appropriate time, aiming to boost the healthy development of the real estate market and ensure reasonable revenues for the State budget.
The Law on Environmental Taxation, which will take effect on January 1, 2012, will be implemented to encourage enterprises and citizens to change their consumption behaviors towards environmental protection. Taxable objects will be added and tax rates adjusted to restrict polluting uses.