A special high tax proposed by some provinces and cities is being questioned by economists due to its controversial impacts on Viet Nam’s tax policies.

In a meeting with Prime Minister Nguyen Xuan Phuc in September, leaders of HCM City said that they would make further requests for specific financial policies, including surcharge and control-incurred expenses, which are not regulated under the law on fees and charges.

Following this, Ha Noi and Hai Phong City asked the Government to allow them to impose special tax mechanisms.

“These requests are necessary and reasonable. Ha Noi has its own Law of Capital, but the final decision has to be made by the National Assembly,” said Hoang Anh Tuan, deputy finance minister.

The Law of Capital is the legal mechanism used to address Ha Noi-based issues.

Tuan said other countries had allowed their major cities to adopt special tax policies. Because of the better infrastructures, city residents were required to pay higher income tax, while some big companies were forced to contribute three to five per cent of their revenue into the local budget.

Vu Hoang Quyen, senior economist of the World Bank (WB), recommended the Viet Nam Government permit economic centres to impose the surcharge policy, especially on personal income tax, enterprise income tax and excise tax.

“However, the Government should carefully apply the change, aiming to help provinces get more motivations and achieve high growth,” added Quyen.

Do Quoc Binh, head of Ha Noi Taxi Association, on the other hand, said the tax increase should be reasonable.

“We cannot say that because business environment in big cities is more favourable, companies should pay higher tax,” Binh said.

Economist Ngo Tri Long is concerned that the change will create exclusive rights for some provinces and cities, causing inequalities in the national economy. He said the special tax should specify what the extra money should be used on, such as traffic congestion or pollution.

“I wonder whether residents and companies in big cities really have better services or is the shortfall due to overspending leading to budget deficits?

Moreover, according to Long, the Government has endowed big cities by providing generous investments or State budget ratios.

Furthermore, Truong Ba Tuan, vice head of the National Institute for Finance, said the Government should not allow provinces to make surcharges since it would arouse a race for priority lobbying.

“Some countries adopting a special tax regime, including Canada. However, the Government should apply any change cautiously in Viet Nam,” Tuan said.

According to the WB report, only 13 of 63 provinces of Viet Nam submit a portion of their charges to the State budget, the others still receive Government financial support. Therefore, the country should create conditions for provinces to control the fees and charges in their localities to increase motivation and competitiveness. — VNS