The Ministry of Finance yesterday urged the National Assembly Standing Committee to make permanent its temporary suspension of personal income tax collections during the first six months of this year.
The ministry suspended enforcement of parts of the Law on Personal Income Tax, originally to have taken effect on January 1, as an economic stimulus measure.
A ministry proposal submitted to the committee in its 20th meeting yesterday also called for taxes imposed on capital gains and income from securities investments under the new law be exempt from taxation through the end of 2010.
It also suggested that taxes levied on all personal income in the second half of the year be reduced by VND200,000 per month.
Minister of Finance Vu Van Ninh told the committee that, when his ministry had suspended implementation of the tax law, the stock market had been in a continuous decline symptomatic of an overall drop in capital investment and bringing to a halt the process of equitising State enterprises.
Suspending collection of the personal income was a quick supply-side measure to promote capital investment and support stock market development, Ninh said.
By making the six-month suspension of income taxes permanent, and reducing taxes in the second half of the year according to the ministry proposal, State budget revenues this year would be reduced by VND6.5-6.8 trillion (US$365-380 million), Ninh estimated.
National Assembly Finance and Budget Committee chairman Phung Quoc Hien said he backed the ministry proposal but that his was a minority position among Standing Committee members.
Only individuals with incomes over VND4 million per month were subject to the income tax and, with exemptions for dependents, the number of people actually falling within the category of taxpayers was only about 300,000, Economic Committee chairman Ha Van Hien noted.
Exempting these people from paying taxes would do little for the overall economy while undercutting Government efforts to redistribute income for the poor, he said.
The full National Assembly was expected to make a final decision on the issue after it reconvened on May 20.
The Standing Committee yesterday also discussed the Government's $8 billion economic stimulus plan, with Hien calling the plan timely and successful in helping keep the economy out of recession.
"Compared to other countries' stimulus packages, ours is not so large," Hien said, adding it was equal to about 10 per cent of national GDP.
Hien wondered, however, whether the Government-subsidized interest rate program would lead to a large number of loan defaults while undermining efforts to restructure the economy and eliminate inefficient enterprises.
Easy credit would simply increase debt burdens and speculation in poor-quality projects, Hien warned.
He also suggested that the stimulus package would fan the State budget deficit and could turn inflationary if it were not coupled with stricter monetary policies.
Ninh estimated that the State budget deficit would equal about 8.3 per cent of GDP this year, equivalent to VND150.3 trillion ($8.4 billion) if GDP grew by 6.5 per cent.
But, Hien warned, if growth reached only 5 per cent, as the Prime Minister had predicted and the majority of the National Assembly Economic Committee expected, then the deficit could grow to a whopping 9.7 per cent of GDP.