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ISSUES FOR 2011-2015

Norregaard-Matheson-Mullins-Schatan

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Content Overview of Revenue Issues

VAT Excises

Natural Resources

Personal Income Tax

Property Taxes Environmental Taxes

Conclusion 2


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Overview of Revenue Issues

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-

Is comprehensive, fair, efficient and

Is simple and transparent Promotes competitiveness and exports

Encoura es investment es eciall in hi h

technology

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GDP in 2008. Sli ht decline to a roximatel 27% in 2011 due

to lower oil prices

Non-oil revenues continued to rise from 18.4%of GDP in 2008 to 20.6% of GDP in 2010

Target revenues of 23-24% in Reform Strategy

appear achievable, despite projected declinein oil and trade revenue and foreign grants

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-

35.00

40.00

25.00

30.00

10.00

15.00

20.00

0.00

5.00

-10.00

-5.00

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Revenue/GDP Expenditure/GDP Non-oil revenue/GDP Deficit/GDP Primary Balance

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Revenue Performance:

Regional Comparison

e nam as one o g es ra os o revenue

to GDP in the region

Only Malaysia and Bhutan are higher

Relative to GDP per capita, Vietnams revenuerat o s t e g est

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40

45

30

35

20

25

even

ues/GDP%

10

15

0

5

8


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Relative to other emerging Asian countries, Vietnamrelies more heavily on CIT

Trade (including import excises)

And less heavily on PIT

Property

Excises

This is not prescriptive, but shows possible areas forrevenue development.

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Comparison of Tax Revenue Shares, Vietnam and Emerging Asia, 2010

30.0

35.0

25.0

15.0

20.0

10.0

5.0

0.0

Tax/GDP PIT CIT Property VAT Excises Trade

Vietnam Emerging Asia (unwtd. avg.)10


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Trade revenues also expected to decline

Steady contribution of non-oil CIT, excises Very small contribution ofrecurrentproperty

taxes

Growing importance of VAT revenue

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30.00

Vietnam: Composition of Revenues, 2004-2010

25.00

20.00PIT

15.00

rcentageofGDP

Property

CIT (non-oil)

ExcisesTrade

10.00

PNRT

CIT (oil)

Other

5.00

0.00

2004 2005 2006 2007 2008 2009 2010*12


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-

invoice-credit method

goods (clean water, fertilizers, fresh food, sugar.)

-and services

No standard threshold

Refunds only above threshold

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VAT Standard Rate, 2010(In percent)

14

16

18

10

12

4

6

0

2

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- VAT Efficiency, 2010(Consumption based)

1.20

1.40

0.80

1.00

0.60

0.20

0.40

0.00

Vietnam Thailand Indonesia Nepal Cambodia Bangladesh Pakistan Philippines17


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Reduction in exempt goods and services

Reduce number of goods and services subject to

5% rate

Study the feasibility of one uniform rate by 2020 Move towards credit-invoice (deduction) method

for all taxpayers (except those below threshold)

Introduce VAT threshold applied to turnover in line

with international practice

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Streamline substantially the list of exemptgoo s w spec c proposa s

Eliminate the lower 5% rate and classify goodso w c ower ra e app es e er as exemp or

subject to the standard rate

n ro uce an exemp on res o or smabusinesses in terms of turnover (with turnover

Eliminate refund threshold for exporters

en ra ze paymen o w rans ers o

local governments) 19


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Wide arra of oods services sub ect to tax:

tobacco air conditioning devices

alcoholic beverages playing cards

oil products votive paper autos gambling

aircrafts amusement services

yachts

and different rates

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all rates ad valorem

ow rate on petro pro ucts 10%

contraband/ low rates in Cambodia

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consumption goods; eliminate those withscarce revenues/high collection cost and easilyeluded;

Consider possibility of increasing gasoline tax; Introduce specific excises to replace ad

valorem;

Streamline rates (e.g: lotteries and gambling);

Re ional coordination to revent smu lin

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Natural Resources

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Current Fiscal Regime: Natural

Resources CIT rate 50%

Promoted projects: 32-40%

Royalties

Oil: 7-29%

Metals: 10-15%

n ng r g s ee an a ona . -

Export duties

ron ore, go , o Natural gas export forbidden

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- 20% 40% 60% 80% 100% 120%

Malaysia ; 1996 R/C + 20% equity

Sri Lanka ; Mannar basin

Norway ; Offshore

or e ec e eg mes

Field: Vietnam Upstream

Size: 71 MMBOE

Project Description

Discount Rate: 10.0%

Vietnam ; 2010 non-incentive 25%

Malaysia ; Deep Water + 20% equity

Indonesia ; 2008

Ghana ; Post Jubilee (2008)

Timor-Leste ; TL_ZOCA

osts: .

Oilprice: $100 Bbl

IRR pre tax: 53%

etnam ; non- ncentve equ ty

Indonesia ; 2011 DW

Timor-Leste ; TL_BU

India ; model 2009 DW

Timor-Leste ; JPDA

Vietnam ; 2010incentive 25%e uit

AETR NPV0

AETR NPV10

Maginal

Notviable

Cambodia ; 2007

Philippines ; 15% participation.

M_Thai_JDA ; 201 0

Thailand ; TH_III (ex cl. SRB)

Vietnam ; 2010 incentive 0% equity

Australia ; PRRT

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In rn i n l m ri n: l- 20% 40% 60% 80% 100%

Mongolia; gold

Ghana; CurrentRegime

Project: GoldMine

Size: 1.3 MM ounces

Unit costs: ConstReal $769

Gold price: ConstReal $1400

Botswana; gold

Sierra Leone; NMA2009

Liberia; gold

AETR NPV0

AETR NPV0

AETR NPV10

IRR pre tax: 48.0%

South Africa; gold

Tanzania; gold

China; gold

Australia; WA (gold)

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, ,

of tax collections to the NPV of the project pre-tax net cash flows.


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90%

100%

ent

138%140%

50%

60%70%

80%

tedat10

per

20%

30%

40%

TRdiscoun

0%

ewterms

Mongolia

oldterms

CanadaIndia

porttariff

ZambiaChile

otswana

Australia

azakhstanPN

G

porttariff

Indonesia

ilippinesPeru

A

Vietnam

Vietna

mnewterms,no

e

amoldterm

s,noe

Vietn Vi

et

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Combination of high royalty rates, high CIT

rates and export taxes may render investment

in Vietnams energy and mining sectors

unattractive relative to other countries.

Export taxes are an inefficient way tostimulate domestic refining.

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Carefull review overall taxation of ener andminerals to ensure international competitiveness Consider shifting the balance between taxes on

,for marginal and maturing projects.

Since natural resource taxation is highly technical,exper ass s ance s a v se .

Phase out export taxes and VAT penalties for

Implement EITI accounting standards to ensuretransparency

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Internationall com etitive CIT rate of 25%

Range ofCIT incentives some rationalization inrecent years, but continue to be very generous

CIT Income/Deductions broadly consistent with

removing deduction limitations and simplifyingdepreciation allowances

ra ua y ntro uc ng ru es to ea w t a us vetax planning: transfer pricing rules; new thinca italization rules

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CIT International TrendsRates falling, but revenue has held upthough lessraised in LICs (pre-crisis) than elsewhere

0.602.50

Low-Income Countries

0.45

0.50

3.50

4.00

High Income

0.30

0.40

.

1.00

1.50

2.00

ercentpoints

0.20

0.25

0.30

0.35

0.40

1.50

2.00

2.50

3.00

.

erc

entPoints

0.00

0.10

.

0.00

0.50

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

0.00

0.05

0.10

.

0.00

0.50

1.00

Corporate Tax Revenue (%GDp)

Corporate Tax Rate (Right Axis)

Corporate Tax Revenue(%GDP)

Corporate Tax Rate (Right Axis)

reducing CIT incentives

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CIT International Trends

Challen es:

Incentives , -

Only attract FDI if governance good

,

Profit-shifting

How much can one reasonably expect to control this?

Case for regional/wider cooperation,

including on policy, becoming stronger?3

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Further base broadenin b rationalizin incentives

allowing for a reduction in the CIT rate in themedium to long term

verage ra e or s a reg on n was .

Align CIT deductions with international practice by:

entertainment and sponsorship for sporting and artisticevents

with 3 or 4 depreciation pools

Ensure effective implementation of rules to addressabusive tax planning

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Poor tax revenues (0.8% of GDP - 2008) due to:

High basic personal allowance

Hi h de endent allowance Interest income exempt

Business income/self employed professionals shelter

under lower CIT rate Pensions exempt

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or 0.1% on selling price;

or 2% on selling price;

Other irregular income, such as prizes and

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tax pensions

lower PIT top marginal/ align with CIT

unify capital gains tax rates/consider a

ua ax sys em broaden the base of capital gains tax

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Land & Housing Tax Key Features

New design for non-agricultural land from 1 January 2012

A lies to land onl revious lan to include buildin s notaccepted)

Tax base continues to be: land size x price per square meter

multiple of the agricultural land tax as previously)

Tax rate:

exceeded: 0.03% standard; 0.07% for land up to 3 times inexcess of quota; 0.15% for excess greater than 3 times.

Same rate for residential and commercial land

Exemptions/reductions - similar to previous law includingfor investment projects and special locations

local level with revenues staying with the local government

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Property Taxes - International

Exper ence Real estate taxes can be efficient and e uitable

and particularly suitable for local governments: relatively benign for growth;

raise few issues of international coordination; and

while their incidence is not fully understood, they seem- .

Revenue potential modest in absolute terms, but:

A relatively easy source of some progressivity?

Challen es are mainl administrative: develo incadastres and valuation methods

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,

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L d & H i T P i l


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Land & Housing Tax Potential

Re orms New re ime is a ositive reform es eciall the

move to market valuation In short term, allow time for the new regime to be

implemented implementation and valuationwould be helped by developing a moderncompu er ze ca as re

In the medium to long term consider:

ncreas ng e ax ra e as e curren ra es are very ow

Expanding the base by including buildings

rates within a range set by the central government

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Environmental Protection Char es

Extraction charges (minerals, fuels)

Base: Volumes/Weights of fuel

,

Waste water charges

Base: Pollutants (Hg, Pb, As, Cd, suspended solids) Exemptions: Some user types, use forms, and regions

Rates: Ranges (floors and ceilings)

Solid waste char es

Revenue use: local restoration

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Tax on various fuels, certain classes ofc em ca s

Exemptions: natural gas, biofuels (all biofueltypes)

Very low (specific) rates without indexation

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Part of top 34 fuel consumption subsidies providers

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Increase fuel taxes, do poverty alleviation via,

Started small Environmental Tax Reform (2012)

ep ace a va orem axes w spec c ra es an n ex

Specific rates for new taxes, not indexed

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The Way Forward:


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The Way Forward:

The Governments Objectives

Government 5-Year-Plan forenvironmental taxes encourage enterprises and people to change their acts to

use and consume product which help protect the

environment increase the revenue of the state budget

continue to study and supplement taxable subjects

products which have negative impacts on environment andecosystem

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International agencies can provide damages

Charge fuels / cars according to their damage

Do not provi e exemptions If competitiveness concern, one can resolve this problem by

handing environmental tax revenue back to industry as an outputsubsidy, but still tax pollution equally for all sectors of theeconomy.

Efficiency requires that equal damage must be

equally priced Do not allow deductibility of environmental tax payments.

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Tax upstream according to the pollutantcontent of fuels Apply oil tax at refinery level, coal tax at the mine, or at

ports fewer collection points, less administration cost

than charging consumers This would address electricity subsidy without excise

Use targeted transfers not fuel subsidies for

Avoid leakages of fuel subsidies Achieve much bigger poverty reduction for same cost

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On tax, Vietnam compares favorably in the region

.and much has been done already! -

and needs to be carefully prepared and sequenced

Significant scope for further simplification and base-

-

More work is, however, needed (on resource tax,

, ,

estimation)54

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