Tax Reform in Vietnam

Abstract

In 2010, after two decades of rapid economic growth, Vietnam passed the threshold to become a lower-middle-income economy. Sustained market-oriented reforms combined with intensive efforts to integrate into the world economy are among the key drivers of this achievement. The reform of tax policy and administration has been a vital part of this transition. This is leading to a fundamental change in the composition of taxpayers, from large state-owned enterprises (SOEs) and foreign-invested companies to a myriad of small and medium private enterprises. Economic transition is also leading to an equally important change in the sources of government revenue, away from cross-border trade-related taxes and revenue collection from crude oil toward a greater share of domestic tax revenue, in particular taxation of business profits, labor income, and capital gains on land. However, completing the transition to a market economy will require changes going beyond tax collection and administration procedures, and will involve changes to the tax instruments themselves. At the end of this process, Vietnam should have a set of taxes that is simple and transparent, secures a stable flow of revenues for the government, encourages an efficient allocation of resources, and does not risk constituting a source of inequality or unfairness. The purpose of the series of studies in this volume is to shed light on the issues Vietnam will be facing in the process of reforming its tax policy and administration. The studies are also expected to lead to concrete policy recommendations contributing to the preparation of key policies and legislative documents to ensure the achievement of the state budget revenue target and other tax administration reform targets in the SEDP 2011-2015. It is expected that the individual studies in this series will become useful inputs into the debate surrounding the issuance of new laws and regulations. It is also hoped that the volume will support the reform momentum in the tax policy area, leading to increased efficiency, transparency, and equity.