Impacts of Direct and Indirect Tax Reforms in Vietnam: A CGE Analysis

Abstract

The study applies a multi-sector multi-household static computable general equilibrium (CGE) tax model to assess the economy-wide impacts of taxes in Vietnam. It examines two tax reform scenarios based on the tax reform plan proposed by the Vietnam Ministry of Finance. The first scenario is increasing the value-added tax (VAT) rate to 12% from the current 10% rate. The second scenario relates to setting a competitive corporate income tax (CIT) rate to the lowest rate in ASEAN (Associations of South East Asian Nations) countries by reducing it from 20% to 17%. Correction of current tax distortions will have positive impacts on labour supply, utility, consumption, output, and welfare of households as they reallocate resources from more to less productive sectors of the economy. The CGE model allows for the finding of the macroeconomic and sectoral effects on prices and outputs, as well as on welfare of households. While this study contributes to the literature on the CGE model for the Vietnam economy, it is a small step for finding the optimal tax structure in Vietnam. It recommends that the Vietnam government should increase the standard VAT rate to 12% and reduce CIT rate to 17% to shift the tax burden from capitalists to consumers.

Economic Instrument in Environmental Management: A Case Study of Environmental Protection Tax in Vietnam

“…The selection of taxable objects with a degree of environmental impact in the initial implementation stage is appropriate and feasible. However, it needs to be studied for amendments and supplements to reflect the actual production and consumption of goods that pollute the environment [11].…”

“…Environmental protection tax is an indirect tax to encourage consumers (polluters by using products harmful to the environment) to use environmentally friendly goods [11,12]. Therefore, consumers have to pay environmental protection tax because this tax has appropriately been calculated into the selling price of goods to avoid harsh reactions from consumers.…”

“…It shows that the EPT was slowing the rapid increase in transport fuel use and consequently the growth of transport sector emissions, creating drivers for behavioral change. GIZ commissioned [10,11,12] modeling that indicates that a drop of around 1.7 percent resulted in reductions in CO 2 emissions by about two million tons during 2012 and 2013. Further tax hikes in 2015 and 2018 might have greater consequences for CO 2 emissions by modeling the yearly decrease in CO 2 emissions of over 9 million tons or 7.9% in a tax scenario of higher quality [14].…”

“…The changes in employment, salaries, and returns on land and capital also impact household incomes. The drop in private consumption would be increased if the government did not reverse some of the tax revenues through transferring money or reducing taxes to households [11,19].…”

“…Suppose the refined liquid fuel tax rates are to be realized. In this scenario, the tax hikes should be gradually phased in with a transparent schedule for projects with greater energy efficiency [10,11].…”