Vietnam finance minister says tax cuts will strain budget

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Vietnamese legislators have suggested that the government cuts value-added tax to boost consumption and spur growth, but the Finance Ministry says the move would make a big dent in the state budget.

If the VAT is removed completely, there will be a loss of VND115.8 trillion, or 16.5 percent of the total budget revenues for this year, Finance Minister Vuong Dinh Hue said Thursday, noting that even just a 50-percent reduction would translate to a very large amount that "cannot be offset".

The tax now stands at 10 percent.

Hue also said cutting the VAT rate for local products without giving a similar tax break for imported goods could risk violating trade regulations. Besides, there is no guarantee that businesses will lower their retail prices correspondingly after the tax is cut, he added.

The Finance Ministry will continue to study and come up with a final plan for VAT in June, he said.

Responding to another proposal that corporate income tax should also be reduced, Hue told legislators that Vietnam's current tax rate of 25 percent is already low compared to the world's average of 27 percent.


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He said the government plans to cut the tax gradually to 20 percent by 2020. If the reduction is made this year, tax revenues will fall by VND20.4 trillion.

"Such a loss will make it difficult to ensure a balance for the state budget given that revenues have been very low in the first five months compared to the past five years and earnings from crude oil are also falling fast," Hue said.

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