Tax Reforms in Viet Nam: A Selective Analysis

Abstract

In this paper a framework of tax reform requirements for Viet Nam is developed based on theories of taxation, particularly Optimal Tax Theory, and international tax reform experience in market and transitional economies. The framework is then used to analyze the structure and system of taxation in Viet Nam at the present stage of reform. The paper concludes that the achievements of Viet Nam's tax reforms have been mixed. There has also been a welcome shift away from production taxes to taxes on income and consumption. However, the revenue share of distortionary trade taxes have risen and income taxes are still largely collected from a few state enterprises and joint ventures. A sound base of tax administration for a modern market economy is yet to be established despite initiatives in this direction. The enactment of the new Budget Law notwithstanding, lack of transparency in tax assignment to different levels of government, a large element of discretion and negotiation in setting rates and targets for shared taxes, and inappropriate tax assignment are undermining the tax effort and contributing to inefficiency. These are the key issues that will need to be addressed in the next phase of tax reform.