Falling global oil prices are certain to have an effect on Vietnam's State budget revenue targets.
Mr. Hoang Thuy Duong & Mr. Ta Hong Thai, Partners, Tax & Corporate Services, KPMG Vietnam
In late 2014 the National Assembly (NA) passed Resolution No. 78/2014/QH13 on State budget targets for 2015. Total budget revenue for the year is to be VND911.1 trillion ($42 billion), an increase of 16.4 per cent against the budget revenue of VND782.7 trillion ($35 billion) recorded in 2014.
Target revenue may be affected by the recent dramatic falls in world oil prices. 2015 estimated revenue from crude oil is VND93 trillion ($4.3 billion), made on the assumption of crude oil being $100 per barrel. The Ministry of Planning and Investment (MPI) estimates that, if the oil price falls from $100 per barrel in 2014 to an average $70 per barrel in 2015, the budget under-collection will reach almost VND30 trillion ($1.3 billion). If the price falls to an average of $60 per barrel revenue will decrease further. According to the Ministry of Finance (MoF) and Resolution No. 78, the proportion of revenue from crude oil for the 2014-2015 period is around 10.2 per cent of the total (compared to 20-25 per cent in the past). The MoF has recently confirmed that even if the crude oil price was $70-75 per barrel, Vietnam would maintain its fiscal balance without the need for adjustment.
Falling global oil prices are said to have two-way impacts on Vietnam’s economy and even tax revenue. Besides the adverse impacts on revenue from crude oil exports and other revenue from oil, reduced costs on fuel will benefit manufacturers and consumers. All things being equal, higher business profits and consumption from fuel cost savings will increase income tax revenue.
In the current context, the government will likely take some action to ensure the completion of the State budget revenue target for 2015. In accordance with Resolution No. 01/NQ-CP dated January 3, 2015, the MPI will monitor the developments of oil prices and proactively propose responses to ensure revenue and balance the budget in 2015 if there are large fluctuations. Experts remain optimistic that Vietnam’s revenue will not be significantly affected by oil prices. However, given the prospect of dim global economic growth while the oil price keeps falling, budget revenue will be under pressure.
As one of the measures to ensure revenue collection, the government and MoF will strengthen tax inspections and tax audit activities in the coming year. Specifically, Resolution No. 01 outlines the following measures to ensure State budget collections for 2015:
- Not propose or issue any new tax policy that may reduce State budget revenue, except for tax cuts due to international commitments. In late 2014 the government issued Resolution No. 63/NQ-CP and the NA passed Law No. 71/2014/QH13 on a range of tax relief measures to support businesses. As a response to falling oil prices, the MoF issued Circular No. 03/2015/TT-BTC, with effect from January 7, 2015, increasing preferential duty rates on a range of petroleum products by 7-11 per cent;
- Strengthen revenue control, take drastic measures against revenue loss, transfer pricing, and tax evasion;
- Strictly control tax refunds; and
- Develop a plan to strengthen tax inspections and tax audits and tax debt recovery, and reduce tax arrears. Of note, tax authorities have already been strengthening tax inspection and tax audit activities since very early in 2015. The General Department of Taxation has instructed provincial tax authorities to make plans for tax inspections and tax audits in 2015 with the following objectives:
- Tax inspections and tax audits must cover a minimum of 14.65 per cent of the total number of enterprises;
- Focusing on tax inspection and tax audit of certain sectors, including oil and gas, power, telecommunications, real estate, transfer of capital, mining, banking, aviation, manufacturing, dairy business, and wholesale and retail;
- Carrying out post refund tax audits on 100 per cent of tax refund dossiers involving large amounts of refunds;
- Focusing on tax inspections and tax audits of enterprises that have not been audited by tax authorities for many years; and
- Auditing enterprises that have related party transactions, large consecutive tax losses, and signs of abusing transfer pricing.
- Given the plan on tax inspections and tax audits, businesses should review their current tax and transfer pricing compliance, for example having a tax health check and making voluntary adjustments to avoid administrative non-compliance penalties.
The views expressed by the authors do not necessarily represent the views and opinions of KPMG Vietnam.