The Government issued Decree No. 111/2020/ND-CP dated September 18, 2020 on Vietnam's Preferential Export Tariffs and Special Preferential Import Tariffs to implement the free trade agreement between Vietnam and the European Union (EVFTA) for the period 2020-2022. Customs newspaper spoke with Pham Tuan Anh - Deputy Director of International Cooperation Department, Ministry of Finance around this.

Pham Tuan Anh - Deputy Director of International Cooperation Department,
Ministry of Finance. 

Could you tell us some basic contents of the newly issued EVFTA tariffs?

- The decree on Preferential Export Tariffs, Special Preferential Import Tariffs of Vietnam for the implementation of the free trade agreement between Vietnam and the European Union (EVFTA) for the period 2020-2022, including sevenarticles and threeattachments.

Ofwhich, the EVFTA Preferential Export Tariff specified in Appendix I issued with the decree includes product codes, description of goods, tax rates for the period 2020-2022, applicable to 526 tariff lines, and the remaining goods on the export tariff under the current list of taxable goods groups are committed to eliminate export tax once the EVFTA comes into force.

Regarding preferential export tax, the average tax rate in 2020 is 9.32%; in 2021 it is 9.01%; and in 2022 it is 8.71%.

The decree also stipulates conditions and procedures for the application of preferential export tax rates under the EVFTA similar to those in Decree No. 57/2019/ND-CP dated June 26, 2019 of the Government on tariffs. Preferential Exports, Vietnam's Special Preferential Import Tariffs to implement the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) for 2019-2022.

Vietnam's special preferential import tariffs for the implementation of the EVFTA are specified in Appendix II to the decree, including product code, description, and special preferential import tax rates for 10,857 tariff lines, of which 10,773 tariff lines are at eight-digit level and 84 tariff lines are detailed at 10-digit level.

Regarding the special preferential import tax rates, the average tax rate in 2020 is 9.26%; in 2021 it is 7.73%; and in 2022 it is 6.2%.

The decree takes effect from September 18, 2020. However, to ensure that imports and exports fully satisfy the requirements for EVFTA tax incentives from the date the EVFTA comes into force, Clause 3, Article 6 of the decree provides: for declarations Customs of export and import goods, registered from 1 August 2020 to before September 18, 2020, if all regulations are met to enjoy preferential export tax rates and import tax Vietnam's special preferences in this decree and for which tax has been paid at a higher tax rate, overpaid tax shall be handled by the customs office in accordance with the law on tax administration.

The promulgation of the preferential tariff schedule for EVFTA implementation will open the door of opportunities for Vietnamese enterprises. Can you speakabout the specific impacts for each industry?

- This FTA brings many opportunities for Vietnamese enterprises, especially for enterprises exporting Vietnam's key products such as seafood, textiles, footwear andtropical agricultural products.

For the fisheries sector, seafood is a highly taxable item inthe EU. The removal of import duties by the EU immediately or with a roadmap for most seafood products, especially, shrimp products, will create conditions for Vietnam's seafood exports to the EU market to be more competitive than other countries with seafood export advantages such as Thailand andthe Philippines.

For the leather and footwear industry, the EU weighted average tax rate on footwear imported from Vietnam is currently 12.4%. Accordingly, the EU commits to abolishing import duties on footwear with rubber, plastic, leather or synthetic leather outsoles and leather uppers originating in Vietnam 3-7 years from the date of the EVFTA coming into effect. The remaining footwear products will be free fromimport duties as soon as the agreement comes into force.

For the textile and garment industry, the average EU tax rate applicable to Vietnam's garment and textile exports is 12%. Per the EVFTA, the EU will abolish taxes as soon as the agreement comes into force for most textile materials, and eliminate import duties with a 3-7 year roadmap for finished clothing products.

Tropical agricultural products that are Vietnam's strength are not major protected goods in theEU. Therefore, when the EU eliminates import duties as soon as the agreement comes into effect under the EVFTA commitments, Vietnam will have a chance to increase the turnover of key agricultural exports to this market.

In addition, a number of industries will be under more competitive pressure such as cars, pharmaceuticals andlivestock. In addition, Vietnam's agricultural and aquatic products have advantages when the EU cutsimport taxes. However, it is still required to meet the EU's food safety requirements.

It is an opportunity for businesses, but it is a challenge for the finance industry or not when a series of commodity groups will reduce the tax rate to 0%, leading to the decline in revenue from import and export?

- In fact, tax revenue from import-export activities before 2015 increased relatively rapidly. This was due to the sharp increase in import-export turnover over the years and import taxes in general; in particular FTAs are in progress of decreasing and not being completely abolished. After 2015, the proportion of State budget revenue from import tax to total State budget revenue tends to decrease as the special preferential import tax rate is increasingly on the roadmap for deep reduction.

However, the scale of State budget revenue from taxes increased rapidly. In general, in 2001-2010, domestic revenue increased about 5.1 times, revenue from crude oil increased about 1.3 times and balanced revenue from import-export increased about 2.9 times. The revenue structure has changed towardsincreasing the proportion from domestic revenue,from production and business activities. Domestic revenue accounts for an increasingly high proportion of total State budget revenue, specifically: in the 2001-2010 period averaged 55.2%, in 2016-2018 on average 74.8% (of which, in 2018 it was 80%), 6%, expected to reach about 84% by 2020) and is expected to achieve the target per the Politburo's Resolution No. 07-NQ/TU dated November 18, 2016 (the expected target is 84-85 %).

The trend of budget revenue reduction due to the impact of the implementation of Vietnam's commitments to cut import taxes in FTAs ​​is inevitable but will be offset by the implementation of joint policy measures related to domestic tax properly and good growth in import and export.

In the near future, to limit the impact of implementing tariff reduction commitments in Vietnam's FTAs, solutions should be taken to restructure revenue sources, expand tax collection bases and increase domestic revenue in accordance with the spirit of the Politburo's Resolution No. 07-NQ/TU dated November 18, 2016 on the guidelines and solutions to restructure the state budget, and manage public debt to ensure the national financial security andNational Assembly's Resolution No. 25/2016/QH14 on the 2016-2020 5-Year Financial Plan.