One of the most remarkable effects of these FTAs is the reduction of almost every import tax. How will tax reductions affect collections for the State budget, and what can the government do to compensate for future deficits?
For the first 9 months of 2014, taxes from cars or vehicles imported into Vietnam reached over 946.6 million USD, accounting for 41.7% of import tax revenues. From 2018, taxes on car imports from ASEAN countries will drop to 0% with the ASEAN Free Trade Agreement (AFTA). Following other upcoming trade agreements, including the TPP, imports from Japan, South Korea, the EU, and US will also be tax-exempt.
So far, there have been no statistics estimating the impact of import-export tax reductions on State budget revenues. However, the Ministry of Finance has revealed that the proportion of import taxes has decreased in the last few years.
"In the age of globalization, revenue from import-export taxes will decrease; therefore, revenue from domestic sources must be increased. For the last 5 years, the rate of tax revenue from domestic sources has increased from 58% to 70%, and is planned to reach 80% by 2020", Vu Thi Mai, Deputy Minister of Finance, said.
At recent seminars on the effects of FTAs on Vietnam’s economy, experts said that reductions in import taxes are not necessarily cause for worry, as every trade agreement brings both challenges and opportunities.
The upcoming trade agreements are expected to open markets for Vietnamese agriculture and seafood produce, as well as garments and textiles. However, Vietnamese businesses must start enhancing their capacity to meet high technical standards and localization rates as specified in the agreements.
