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May 09, 2018 / 17:39

State budget faces pressure under implementation of FTAs commitments

Vietnam’s state budget is estimated to reduce by some VND30.15 trillion (US$1.32 billion) this year as the country has to apply the elimination of multiple tariff barriers under signed free trade agreements (FTAs), according to the General Department of Customs.

Of the total, some VND2.5 trillion will come from the import tax reduction of under nine seat automobiles, some VND1.1 trillion from automobile parts and some VND8.3 trillion from petroleum in the wake of the operation of the Nghi Son Refinery in the first quarter of 2018.
State budget will reduce some VND2.5 trillion from automobile imports
State budget will reduce some VND2.5 trillion from automobile imports
This year is an important transitional year of the elimination of tariff barriers for many commodities imported from ASEAN countries, as over 90 percent of the goods under the ASEAN trade agreement (ATIGA) will bear 0 percent tariff. The strongest tax reduction is applied to some items with large tax revenues such as auto (30 percent to 0 percent), components and spare parts (5 percent, 20 percent to 0 percent), steel (5 percent to 0 percent), and agricultural products, tobacco, and alcohol.
In addition, with the signing of ASEAN-China trade agreements (ACFTA), and ASEAN-South Korea trade agreements (AKFTA), over 400 commodity lines with current tariffs of 5 percent, 7 percent, and 10 percent will be 0 percent in 2018. These two countries are the current largest exporters to Vietnam.
According to statistics of the General Department of Customs, Vietnam records very large import turnover from three main partners, including China, South Korea, and ASEAN countries. The import turnover from China has been improved in the direction of reducing the proportion in import value and trade deficit ratio.
However, in replace for the reduction of import turnover with China, Vietnam has raised imports from South Korea and ASEAN countries. The trade deficit ratios at these markets have also increased. The main goods Vietnam imports from South Korea include machinery, electronic components, and automobiles; while main goods imported from ASEAN countries are machinery, construction materials, consumer goods, automobiles and automobile components, and electronics.
According to the MoF, Vietnam has signed 10 FTAs. The implementation of commitments on tariffs aims to attract and contributes to increase foreign investment and cut costs, while helping increase state budget revenues from domestic taxes such as corporate income tax, land tax, value added tax, and personal income tax.
In the immediate future, the implementation of FTA commitments will lead to a fall in revenue from import tariffs, affecting the overall state budget revenue. This puts great pressure on the structure of budget spending, in particular new tax revenues may arise, increasing the burden on domestic sectors if it is not controlled.
In the coming time, Vietnam may deeply participate in some new generation and interregional FTAs such as the RCEP Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP).
According to the estimate, with 10 new generation bilateral and multilateral free trade agreements (FTAs), the country’s state budget will continue reduce by VND36.34 trillion in 2019 and VND43.96 trillion in 2020.
Experts suggested that in order to minimize adverse impacts caused by the implementation of FTAs commitments, Vietnam should promote economic growth, increase sustainable trade turnover to increase value added tax, special consumption tax and environmental protection tax at the import stage. 
At the same time, the country needs to continue to reform the tax system with a view to building a comprehensive tax system, which will not only encourage all economic sectors to develop but also ensure financial resources to meet the needs of socio-economic development.