A woman buying fruits in Đông Ba Market, Huế City. Economic expert Trần Đình Thiên called for deeper VAT cuts to boost domestic consumption for the rest of 2023. — VNA/VNS Photo Tường Vi

HÀ NỘI — Tax cuts are one of the most powerful instruments to boost domestic consumption under the current economic conditions where little room is left for monetary policy.

That remark was made by economic expert Trần Đình Thiên at the workshop "Fostering the Development of Domestic Market and Macroeconomic Stability" on Wednesday.

He said tax cuts hurt fiscal revenue, but it has to be done to spur consumer spending. In fact, a VAT cut of 2.0 per cent has been introduced under the rationale and it worked: Total retail sales of goods and services rose by 10 per cent in the first eight months of 2023.

As the economic indicator began to slow down in recent months, he called for deeper cuts on VAT to keep the ball rolling. He also underlined the need for measures to cut the time lag between policy formulation and implementation to improve the effects of tax policy.

"A VAT cut of 2.0 per cent is no longer enough for the economy. Companies want the VAT to be kept at lower levels, either 3.0 or 4.0 per cent," said Thiên.

Regarding monthly financial assistance, the economic expert went so far as to suggest a support package of between VNĐ3 million (US$123) to VNĐ5 million for every family in the country to boost consumption. Higher consumption, in turn, would act as a catalyst for higher production.

Phùng Thế Vinh, Deputy Director General of Kangaroo Group, said the Government had been responsive to the economic downturn. It has instructed the State Bank of Vietnam to cut lending rates to improve firms' access to cheap money.

However, the firms could not absorb the preferential loans as expected, leading to abundant untapped liquidity in the banking system and a velocity of money far lower than that in the previous years.

For the rest of the year, Vinh urged the government to keep exchange rates and interest rates stable, which, he believed, is essential to a business environment conducive to the firms.

Lê Huy Khôi, Head of the Department of Science and Training Management, Vietnam Institute of Industrial and Trade Policy and Strategy, suggested several measures to sustain economic growth for the last months of 2023.

The first measure involves the disbursement of public investment. He said the Government should accelerate the delivery of public money to stimulate output as public investment is a driver of economic growth.

The next measure requires a rise in wages to improve worker income. With higher income, people would spend more, providing fresh impetus to domestic demand. Another measure centers around deeper cuts in interest rates to raise credits to the economy.

"Interest rates are still high. We need to slash them further to support firms," said Khôi.