| Cooperation in implementing full package export services Conditions for export services to enjoy 0% tax rate |
Associate Professor, Dr. Dinh Trong Thinh - Economic expert had an interview with reporters of Industry and Trade Newspaper about this issue.
The proposal to impose a 10% value added tax (VAT) on exported services was proposed by the Ministry of Finance in the draft Law on VAT (amended). What is your comment on this?
Article 9.1 of the draft Law on VAT (amended) will impose tax on most export services, without allowing the 0% tax rate as before. The export service sectors that will still enjoy the 0% tax rate are only international transportation, rental of means of transport outside Vietnam and some related services. Other service sectors will be subject to the corresponding tax rate (basically 10%).
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| Proposal to impose VAT on exported services is considered to have more disadvantages than benefits (Illustration photo) |
The reason for this amendment is that in the past, tax authorities had difficulty distinguishing which revenue came from exported services and which revenue came from domestically consumed services.
This, in my opinion, is inappropriate because Vietnam's orientation is to prioritize exports. Currently, there is a surplus in trade activities, but the export of services is in deficit, even a large deficit. Therefore, if we want to promote export services, we cannot impose taxes.
On the other hand, the reason given is that it is not possible to distinguish which revenue comes from exported services and which revenue comes from domestically consumed services, which is even more undesirable. Because it is difficult to distinguish, the authorities should not tax everything.
Not to mention the service sector is one of the important sectors from which we can change the structure of the economy that we are currently looking for, which is to increase the proportion of service and industrial exports in the total export turnover of goods of Vietnam. This means that export services must take the lead.
However, with the export of services not being much, but proposing to impose VAT, this means that we are blocking the way or in other words, using the "brake" to stop the export of services. This goes against the desire to restructure the economy.
Obviously, considering the means, applying value added tax to exported services is unreasonable.
In addition, collecting VAT on exported services will lead to double taxation, thereby making Vietnam's service exports more expensive because they are taxed twice (subject to VAT in Vietnam and VAT in the country importing the service). This is both unfair and does not encourage domestic enterprises to expand their exports.
Tax inspection and examination is the job of state agencies. If it is difficult, it must be overcome by technical measures and probability checks. No matter how difficult it is, it is necessary to classify and separate goods to avoid double taxation on the same segment and product.
The tax management tool for export services as you shared is clearly unreasonable. So what will be the solution, sir?
In my opinion, this is not too difficult, because when exporting, any product or service must be transferred through the bank. Not to mention that export and import activities all have contracts.
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| Assoc. Prof. Dr. Dinh Trong Thinh - Economic expert |
The important issue is to manage this cash flow from the bank. The tax sector needs to work closely with the banking sector. Accordingly, cash flows in and out of the country, if they exceed certain limits, must be reported. And the bank must monitor this.
In the past, countries had taxes on exported goods, but now no country has taxes on exports, except for goods related to natural resources, minerals that cannot be recovered. We must encourage exports, not "restrict them".
How do you evaluate Vietnam's service export potential?
According to the World Bank database, global service exports have increased from over 400 billion USD in the early 1980s to over 7,210 billion USD in 2022. Notably, from 2003 to present, the average growth rate of global service exports has reached over 6.5%.
Among the types of exported services, international transport services (enjoying a 0% tax rate in the Draft) account for a large proportion, but this proportion has been decreasing, from 30% in 1982 to 17% in 2020 (before Covid), and has been replaced by telecommunications and information technology (ICT) services. Global ICT service export growth has averaged 12.3% since 2004, with an increasing pace since Covid.
Currently, service export is a field with great potential for development. In 2023, Vietnam's service export turnover will reach about 20 billion USD, with an average growth rate of about 11% per year, higher than GDP growth. Moreover, service export activities often do not require too much investment capital, so it is suitable for a capital-deficient economy like Vietnam.
Obviously, export services are one of the strengths of Vietnamese enterprises. Especially in the digital economy era like today, our export of financial services, accounting services, etc. is our strength. If we know how to unleash potential, organize, find sources and cooperate, our service exports will flourish in the coming period.
However, if they are subject to a 10% VAT rate when exporting, it will make it difficult for Vietnamese foreign service providers to compete with rivals from other countries. Therefore, it will reduce the competitiveness of Vietnamese enterprises, leading to Vietnamese investors looking to go abroad to invest. This not only causes a brain drain, but also fails to earn foreign currency.
Thank you!
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