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.
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