Keeping up with Growth: Building a Modern Tax Administration in Vietnam, 2004-2015

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Abstract 

As Vietnam gradually became a middle-income country during the early 2000s, its tax agency struggled to keep up. In the decade and a half following the Communist Party–led government’s 1986 decision to establish a market-based economy, local entrepreneurs launched businesses, foreign investors poured into the country, and the average annual rate of economic growth soared to 7.5%. But during the same period, tax revenues declined as the General Department of Taxation (GDT), which previously collected almost all of the country’s taxes from a small group of state-owned enterprises, strove to keep pace with the economic dynamism. In 2004, the department established an internal reform team and adopted a strategy to make sure those who could pay covered their fair share of the cost of government services. The GDT worked with the finance ministry’s tax policy department and the parliament to implement a raft of legal changes. The department then reorganized each of its 758 tax offices along functional lines, rolled out a new IT system, improved staff training, and created a unit to bolster taxpayer compliance. It later adopted a personal income tax and tried—sometimes unsuccessfully—to close exemptions created earlier to attract foreign investors. Although its collection levels began to plateau after 2010, in the decade or so from 2004 to 2015 the GDT increased the number of registered taxpayers in the country to 15 million from 2 million and tripled the amount of taxes it collected annually, maintaining one of the highest tax-to-GDP ratios in East Asia.

Leon Schreiber drafted this case study on the basis of interviews conducted in Hanoi, Vietnam in May 2018. Case published in August 2018. 

Keywords 
tax collection
tax administration
public finance
domestic revenue mobilization
economic growth
Focus Area(s): 
Financial Management
Critical Tasks: 
Competitiveness
Compliance with international law
Computerization of records
Consensus building
Corruption in the Civil Service
Enforcement
Job descriptions
One-stop shops
Organization and staffing
Prevention
Priority setting
Promotion
Revenue generation
Sequencing reform
Strategic planning
Training
Core Challenge: 
Capacity (capability traps)
Credibility (trust)
Devolution
Country of Reform: 
Vietnam
Type: 
Case Studies
Author: 
Leon Schreiber