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ASEAN needs to collaborate for better tax policy: report



Nguyễn Đức Thành, VEPR’s Chief Advisor, speaking at the launch of the report “Towards Sustainable Tax Policies in the ASEAN Region”.— Photo VEPR

HÀ NỘI — ASEAN and all member states must collaborate to establish a better tax policy system to build sustainability and resilience across the region, found a report launched on Thursday in Hà Nội.

The report ‘Towards Sustainable Tax Policies in the ASEAN Region: the Case of Corporate Tax Incentives’ by the Việt Nam Institute for Economic and Policy Research (VEPR), Oxfam, Tax and Fiscal Justice Asia (TAFJA), the PRAKARSA and Việt Nam Tax Justice Alliance (VATJ) proposed solutions for ASEAN to improve policies and actions for increasing domestic revenue to fund public goods.

With ASEAN suffering from unprecedented economic inequality, the region has struggled to invest sufficiently in public goods due to a lack of tax revenue. Raising revenue was critical to overcoming interrelated challenges like high levels of poverty, widening inequality and the climate crisis while recovering from the COVID-19 pandemic, the report found.

The report cited statistics that 11 per cent of ASEAN’s 653.9 million people struggled in poverty well before COVID-19 and this number might go up rapidly with economic activities slowing and recovery a long way away.

The governments were handicapped in spending on public wellbeing, and all ASEAN countries would likely face budget deficits in 2020 at an average of 4.2 per cent of GDP, compared to the average budget deficit of 1.5 per cent of GDP in 2018.

Some countries were also heavily indebted. With escalating spending to battle the pandemic, its economic fallout, and falling tax revenues due to crippled productivity, deficits and debt were likely to keep mounting, according to the report.

The report pointed out that in ASEAN, revenue collection levels as a ratio to GDP remained very low in comparison to other regions. In 2018, the ASEAN average was 19.1 per cent of GDP, less than half of that of the Organization for Economic Co-operation and Development (OECD) countries and lower than the average of Latin America and the Caribbean.

“Now, more than ever, ASEAN and the member states must collaborate and agree upon a common minimum standard for corporate tax incentives in the region. They need to prevent harmful tax practices that drain essential public revenue and create self-destructive competition among members,” Nguyễn Đức Thành, VEPR’s Chief Advisor, said.

“The tax incentives have helped big corporations to prosper at the expense of Asian people. This must come to an end. ASEAN must blacklist – draw a line – and say no to harmful tax incentives which drastically deplete much needed national revenues. If any incentives are to be allowed, they must only be meaningful investments that benefit the people, with no exceptions,” Thành stressed.

Countries in ASEAN were still highly dependent on revenue from corporate income tax (CIT). However, they were giving up huge amounts of revenue by offering large tax incentives to foreign investors and were losing a significant amount of potential tax revenue, about 6 per cent of GDP in Cambodia and 1 per cent of GDP in Việt Nam.

Of note, countries in the ASEAN region were competing with one another in a disastrous race to the bottom by reducing their CIT rates and offering aggressive tax incentives to foreign multinationals.

The report pointed out that across the region, the average CIT rate had fallen over the last 10 years, from 25.1 per cent in 2010 to 21.7 per cent in 2020. Taking into account tax holidays of up to 20 years and other enormous profit-based incentives offered to multinationals by some countries, the effective corporate tax rate is on average 9.4 percentage points lower.

“ASEAN countries with similar economies often compete with each other by offering greater incentives than their peers in order to attract investments from multinationals, rather than coordinating their actions to secure collective gains. The process of shifting production from China to the ASEAN region may worsen this competition between countries, as they seek to attract FDI inflows to further their own interests in boosting economic development, without seeing the wider regional picture,” the report wrote.

Tax incentives tend to create an unfair investment environment for small and medium-sized local companies. In Việt Nam, the effective CIT rate for foreign companies in the manufacturing sector in 2016 was 8 per cent but for domestic companies, it was 14.5 per cent, and it was even higher for large State-owned enterprises at 16 per cent.

“ASEAN member states need to collaborate and discard ‘beggar-thy-neighbour’ tax policies, including race-to-the-bottom tax incentives that translate into lost revenues which have left poorer countries and people struggling to make ends meet,” Ah Maftuchan, Co-coordinator of TAFJA said.

According to the report, the region needs to set up a blacklist of tax incentives to phase them out across the region. They should agree on a whitelist of tax incentives that are acceptable and allowed. A transparent and accountable mechanism should be put in place at the ASEAN level to monitor developments in tax policy and to decide which incentives should be blacklisted or whitelisted.

Besides, ASEAN need to agree on a common minimum tax standard. The appropriate rate may range from 12.5 per cent to 20 per cent to protect countries’ domestic tax revenues and stop the beggar-thy-neighbour approach to policy making.

Finally, ASEAN need to agree on rules for the good governance of tax incentives.  



Vietnam fifth in global trade connectedness



Vietnam fifth in global trade connectedness

The Tan Cang – Cai Mep International Port in Ba Ria-Vung Tau, southern Vietnam.Photo by Shutterstock/Hien Phung Thu.

Vietnam ranked fifth globally last year in terms of trade connectedness, up five places from 2017, according to a recent report by logistics giant DHL.

With a score of 83 points, Vietnam ranked behind Singapore (92), the Netherlands (92), Belgium (91) and Malaysia (84).

Most countries and territories in the top 10 saw their ranks drop or remain unchanged. Trade is one of four pillars of the DHL Global Connectedness Index 2020, the others being capital, information and people. These pillars are measured by the quantity of traded goods, the amount of international investment and the number of migrants.

The overall ranking of Vietnam in the global connectedness index was 38 among 169 countries and territories, up one place from 2017. “Vietnam has become a serious competitor to China not only in textiles manufacturing, but also increasingly in high tech products,” the report said.

Shoeib Reza Choudhury, CEO of DHL Express Vietnam, said Vietnam was one of the top destinations of companies seeking to diversify their manufacturing, drawn by the young labor force, trade pacts and social stability.

Moving to Vietnam is most popular among hi-tech forms and garment companies, he added. The DHL Global Connectedness Index is compiled every two years to measure the state of globalization in 169 countries and territories.


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Businesses complain about new CIT payment regulation



Under the new regulation, by the end of the third quarter, enterprises have to estimate the amounts of tax of the fourth quarter and pay the amounts.

Some of the Decree 126 provisions effective on December 5 related to the Law on Tax Administration, say that the total amount of corporate income tax (CIT) that enterprises temporarily pay in the first three quarters of the year must not be lower than 75 percent of the CIT amounts they have to pay for the whole year.

Businesses complain about new CIT payment regulation

This means that by the end of the third quarter, enterprises have to estimate the amounts of tax of the fourth quarter and pay the amounts instead of the end of the fourth quarter as previously applied.

Dang Ngoc Minh, deputy general of the General Department of Taxation (GDT), told the press on the sidelines of the dialogue between enterprises and customs and taxation agencies held some days ago, that the state budget has a shortage and the purpose of the budget collection is to get money to pay for state management operations, especially to allocate to provinces that cannot cover expenses.

In other words, the budget collection progress plays a very important role in the operations of many localities.

Asked if GDT has received complaints about the new regulation from enterprises, he said these are just a few enterprises and they don’t represent the whole business community.

The official stressed that the tax collection must be done in reference to the local budget management and the benefits of society.

This means that despite the complaints, GDT is still determined to collect tax as planned.

What will happen if enterprises are fined not because they did not pay tax, but just because they did not anticipate the sharp increase in the amount of tax they would have to pay in Q4?

In replay, GDT said it believes that this may happen but not regularly, because enterprises can foresee their business performance.

But enterprises disagreed with GDT about the uncommon number of cases that saw revenue soaring unexpectedly in Q4.

“GDT always sets estimates on state budget collections every year. Will it dare to affirm that it can collect 75 percent of the total budget collections of the whole year by the end of Q3?” a businessman said. “Will it be fined if it fails to do this?”

The businessman went on to explain that no business dares to set revenue targets quarterly, but they only dare set for the whole year.

“Everyone wants to fulfill yearly business plans, but unexpected things always occur. Businesses were preparing for the year-end sale season, when new Covid-19 infections were discovered in HCM City,” he said.

According to GDT, the Decree 126 will take place on December 5. This means that enterprises, seriously affected by Covid-19, will not be affected by the new regulation this year, because the deadline for temporary tax payment was the last day of October, or Q3.

“Who dares to say he will make profit this Tet sale season? With the regulation, it is still unclear which businesses will take a loss and which will make a profit, but all of them now have to make temporary tax payments,” he said.

When the Decree 20 dated in 2017 on the tax administration applied to enterprises with transactions with related parties facing businesses’ complaints, the Prime Minister has repeatedly requested to amend the decree. It took three years to do this.

The decree covers only 8,000 businesses, 83 percent of which are foreign invested enterprises and 17 percent Vietnamese enterprises.

Meanwhile, the number of businesses to be affected by Decree 126 is much higher and the businesses are from many different economic sectors which face difficulties.

The regulation will have a big impact on enterprises and lead to serious consequences, even if it is amended later.

The director of an enterprise warned that businesses that have been hit hard by Covid-19 will become even worse because of the new regulation on temporary tax payment.

“You don’t have money, but you still have to pay taxes in advance, based on the estimated profit you may make in the future. It is just like taxing dreams,” he commented.

Meanwhile, according to GDT, the Decree 126 will take place on December 5. This means that enterprises, seriously affected by Covid-19, will not be affected by the new regulation this year, because the deadline for temporary tax payment was the last day of October, or Q3.

So, enterprises will only have to make temporary tax payment in accordance with Decree 126 by the end of October 2021. 

Duy Anh


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Vietnam says Oct. CPI up 2.47 pct on year

Vietnam estimated its consumer price index for October jumped 2.47 percent from a year earlier.



The General Statistics Office said in a report on Thursday that average inflation in the first ten months of this year rose 3.71 percent over the same period of last year.

October inflation slightly rise 0.09 percent against the previous month and December of 2019, the lowest growing rate since 2016.  

Increased prices in education sector and hike food prices due to floods in central region were the main driver of the month’s inflation.

Core inflation in October increased by 0.07 percent over the previous month and by 1.88 percent over the same period last year.

Average core inflation in the first 10 months of 2020 increased by 2.52 percent over the same period in 2019.

The government’s GDP growth target for this year is below 3 percent.

► Vietnam targets 2021 economic growth at 6 percent


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