Economic Analysis - Tax Reform Package Positive For Fiscal Credibility, LT Growth Outlook - NOV 2017

BMI View: T he proposed tax reform package (which includes a VAT hike and several other tax measures) by the MoF is the latest in a series of fiscal reforms which demonstrates the Vietnamese government's commitment to fiscal consolidation. We believe this will help to improve the government's fiscal credibility, trim public debt as a share of GDP, and provide room for public infrastructure development over the coming years.

Vietnam's Ministry of Finance (MoF) has proposed a number of amendments to the current tax regime, including a hike in value-added tax (VAT), a new excise on soft drinks, higher duties on tobacco products, changes to income tax bands, and a reduction to corporate income taxes. In our view, this is a positive development as Vietnam's tax-to-GDP ratio has been declining over the last few years and fiscal constraints are posing downside risks for businesses and the economy ( see ' Fiscal Constraints Raising Risks For Businesses', July 27). The latest tax reform package comes after the government abolished guarantees for SOE's loans and accelerated the SOE privatisation drive ( see ' SOE Reforms Positive But Corruption A Risk ' , January 24), further demonstrating its commitment to fiscal consolidation. Accordingly, we forecast Vietnam's public debt as a share of GDP to public debt as a share of GDP to gradually decline to 58.1% by 2026, from an estimated 64.7% in 2016. This should help to improve fiscal credibility and allow the government to carry out its infrastructure development plans, thereby boosting the country's long-term economic outlook.

Details About The Proposed Tax Reforms

Fiscal Consolidation In Progress
Vietnam - Budget Balance & Public Debt, % Of GDP
IMF/Ministry of Finance

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