Reducing value added tax does not affect budget balance

Professor, Dr. Hoang Van Cuong, member of the National Assembly's Finance and Budget Committee, said that the reduction in value-added tax rate from 10% to 8%, which will continue until the end of 2024, will not affect the state budget balance this year.

Professor, Dr. Hoang Van Cuong, Member of the National Assembly's Finance and Budget Committee.

Will the continued reduction of value-added tax in the last 6 months of 2024 certainly affect this year's revenue and expenditure, sir?

According to the Ministry of Finance's calculations, with a 2% reduction in value added tax, in the first 6 months of the year, the state budget revenue decreased by 23,500 billion VND and if it continues until the end of this year, the total revenue will decrease by about 47,500 billion VND for the whole year.

If we add other policies of exemption, reduction, and extension that are about to be or will be implemented, the state budget will have even more revenue reduction, but this will not affect the state budget balance this year.

Obviously, the reduction in state budget revenue will certainly affect the balance of revenue and expenditure. So why does the reduction of taxes and fees not affect the balance, sir?

This year's budget balance estimate was approved by the National Assembly in November last year, meaning that all revenues and expenditures have been carefully estimated and calculated. Tax reductions were implemented after the estimate was approved, so in theory, if revenues decrease while expenditures do not decrease, it will immediately affect the revenue-expenditure balance. However, after the experience of implementing exemptions and reductions four times before (since 2020), when preparing the estimate, the Government calculated that in case production and business activities have not recovered and enterprises are facing difficulties, it will continue to implement policies on tax, fee, charge, and land rent exemptions and reductions, so the construction revenue estimate is "a bit low" compared to what can be achieved in reality. Therefore, the exemptions and reductions do not affect the budget balance.

This year, the fiscal policies to support people and businesses that have been and will be issued will not affect the financial resources to spend the items already in the budget. In the first 5 months of the year, according to data from the Ministry of Finance, budget revenue reached 52.8% of the estimate, up 14.8% over the same period in 2023, while total budget expenditure only reached 31% of the estimate, up only 0.5% over the same period in 2023. Therefore, in the second half of this year, assuming that the budget revenue decreases due to a reduction in value-added tax and policies on tax, fee, charge, and land rent exemption and reduction issued, and increased expenditure to accelerate public investment, the budget revenue-expenditure balance will still be guaranteed, and public debt and government debt will still be very safe.

But in the balance of revenue and expenditure, there is something very confusing: although the exemptions and reductions are implemented after the National Assembly has approved the budget, every year the revenue exceeds the budget and increases compared to the previous year. How do you explain this?

The budget estimate for the following year is built from July to August of the previous year, until October, the Government approves it and submits it to the National Assembly for approval at the end of November, so the requirement for accuracy is very difficult. Because Vietnam's production, business, import-export activities, and foreign investment attraction depend greatly on fluctuations in the world economy and politics. In an uncertain world, it is impossible to predict what will happen, it is impossible to calculate how the prices of crude oil, input materials, food, etc. will fluctuate because they depend on the world market. Even the VND/USD exchange rate is very difficult to predict because it depends on the tightening or loosening monetary policy of the US Federal Reserve (Fed). In this context, the revenue estimate is often lower than the actual revenue... to be on the safe side, so the revenue often exceeds the estimate.

In fact, in recent years, public investment, export, production, business activities... in the first months of the year did not meet the Government's target set in Resolution 01/NQ-CP, but from the third quarter onwards, all activities have been on track, with some revenue items increasing sharply, especially revenue from land, so revenue has increased compared to the previous year. Moreover, tax reduction does not mean revenue reduction, but even revenue increase. For example, if VAT is not reduced, the State budget will collect 10 VND with a tax rate of 10%, but when the tax is reduced to 8%, the budget can collect 12-16 VND because consumers increase spending by 1.5-2 times.

Not to mention, many newly generated revenue sources with very large amounts of revenue have only recently been exploited, so there is still a lot of room for revenue increase.

So what do you expect this year?

This weekend (June 29, 2024), the General Statistics Office will announce the socio-economic situation of the second quarter and the first 6 months of the year, but everyone can see a pretty bright picture.

With this picture, the Government is determined to continue to prioritize promoting economic growth, striving for a GDP growth rate above the target set by the National Assembly (6.5%). With high economic growth, there is no need to worry about the state budget revenue not exceeding the estimate.

However, the Government is never subjective, so it issued Resolution 93/NQ-CP (June 18, 2024) on key tasks and solutions to promote growth, control inflation and stabilize the macro-economy with the motto of being brave, not subjective, negligent, or losing vigilance, but also not pessimistic or fearful; closely monitoring the situation, analyzing, forecasting, having timely, appropriate and effective policy responses in the spirit of proactively "attacking and defending" early, from afar, right from the starting point, from the grassroots.

Source: https://baodautu.vn/giam-thue-gia-tri-gia-tang-khong-anh-huong-den-can-doi-ngan-sach-d218341.html