- Basic data
- Public finances and the state budget
- Banking system
- Tax system
The year 2021 was one of the most difficult for Vietnam’s economy in its modern history. While in 2020 Vietnam was one of the fastest growing economies in the world and its exemplary way of controlling the spread of the Covid-19 epidemic could be the envy of other countries, the spread of the virulent delta variant dealt a severe blow to the Vietnamese economy. Large-scale lockdowns, production shutdowns and disrupted supply chains even caused Vietnam’s first negative GDP growth since the turn of the millennium in the third quarter. Total GDP growth thus reached only 2.7% last year . However, the gradual opening of Vietnam’s economy and the change of the government’s strict anti-epidemic measures to a “living with Covid” strategy will lead to a resumption of economic growth, which could reach up to 6.8% at the end of 2022. The fourth wave of the pandemic that hit Vietnam in the middle of last year was the main cause of the dramatic decline in economic performance. Ho Chi Minh City and adjacent provinces, where a significant part of Vietnam’s export industry is concentrated, became the epicenter of the infection. Last year, the coronavirus took its toll not only on tourism and air transport, but for the first time seriously affected essentially all sectors of the Vietnamese economy, including industrial sectors. The Vietnamese government responded to the fourth wave of the pandemic by speeding up the vaccination process, which made it possible to open practically the entire economy by the end of the year. The vaccination rate of the Vietnamese population increased from 5% in July 2021 to 70% at the end of last year. Despite widespread closures of Vietnamese industrial enterprises, he was export-oriented industry was the main growth driver of Vietnam’s economy last year . The confidence of foreign investors, who invested roughly the same volume of investments in the Vietnamese economy last year as in the previous two years (approx. USD 20 billion), remained intact. The volume of promised foreign loans even increased slightly (by 10%) to USD 31 billion. From the point of view of the external stability of the economy, Vietnam’s foreign trade also developed relatively favorably. Exports increased year-on-year by 19% to USD 336 billion and imports by 26% to USD 332 billion. The total trade balance is in positive numbers for the sixth year already. On the other hand, the most affected sector was the service sector, whose economic performance grew by only 1.2% last year. Within this sector, the tourism sector suffered the most, which in the pre-pandemic period made up 10% of Vietnam’s GDP. While around 20 million tourists visited Vietnam annually until 2019, last year it was only a few tens of thousands, after the government allowed limited visits to selected tourist destinations in the south of the country. A more fundamental turn for the better in the tourism sector can be expected this year (on March 15, 2022, international commercial flights were fully resumed and tourists from all countries were allowed to enter). Government spending also provided the Vietnamese economy with an important impetus to sustain growth. Last year, the Vietnamese government continued to apply economic support packages totaling USD 10.31 billion (2.8% of GDP). Paradoxically, relaxed fiscal and monetary policy did not have a significant effect on the growth of the price level. Inflation measured by the CPI index last year reached just 1.8%. However, unemployment rose by 0.6% to 4.1% thanks to the slowdown in economic growth. This is the highest unemployment rate in the last eleven years.
According to cheeroutdoor.com, most international financial institutions and independent analysts expect the growth of Vietnam’s economy to significantly accelerate again this year. Estimates of GDP growth in 2022 range between 6.5-7.5% . A positive outlook on the long-term development of the Vietnamese economy and its growing attractiveness for foreign investors is also generally shared. Relatively high economic and political stability, low production costs and growing consumer demand will be among the main strengths of Vietnam in the next ten years. We can therefore expect a further transfer of production capacities to Vietnam, especially from China, but also from other developed Asian countries, including ASEAN countries. The Vietnamese government is also striving for a faster inflow of foreign investment into new sectors with high added value. The new economic strategy for the years 2021-2025 approved by the National Assembly in November 2021 envisages the development of the digital economy, hi-tech industry and green technologies. In these sectors, new business and investment opportunities will arise for Czech companies as well.
|GDP growth (%)||7||2.9||2.7||6.8||7.4|
|Export of goods (billion USD)||264.3||282.5||335.9||396.2||428.1|
|Import of goods (billion USD)||253.4||262.7||331.2||393.2||418.5|
|Trade Balance (Billion USD)||21.5||30.6||18.7||19.5||27.3|
|Industrial production (% change)||6.6||2.7||1.6||12.8||10.9|
|OECD export risk||04.VII||04.VII||04.VII||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||-5.2|
|Public debt (% of GDP)||52.5|
|Current account balance (billion USD)||2.9|
|F.O||5 – 35%|
|VAT||10% (temporarily reduced to 8%)|
Until the crisis year of 2020, Vietnam’s public finances showed a gradual consolidation trend and relative stability. The Vietnamese government has managed to gradually reduce annual state budget deficits to around 3% of GDP in 2017-2019. In 2020, thanks to supportive fiscal measures in connection with the Covid-19 pandemic, the state budget deficit again jumped to 5.9% of GDP, and in 2021 it was possible to reduce the deficit slightly to 5.2% of GDP. Fiscal and monetary stimulus packages applied by the Vietnamese government in 2020-2021 totaled USD 29.5 billion (approx. 11% of Vietnam’s GDP).
Pressures on Vietnam’s budget should be significantly lower this year, although some stimulus programs of the Vietnamese government will catch up. The Vietnamese government should continue to apply stimulus programs only on the revenue side of the budget this year. It is assumed that the reduced VAT from 10% to 8% will be maintained throughout 2022. In 2023, some tax investment incentives in special economic zones for multinational corporations will also end (in line with the OECD strategy for a minimum tax of 15%). The income side of the budget will then be positively affected by the overall growth of the economy and the growing profits of companies.
In the long term, a gradual consolidation trend of public finances can be expected. At the end of 2022, the state budget deficit could thus reach 3.7% of GDP. In the following years, a re-consolidation of public finances can be assumed up to 2.7% of GDP in 2025. Revenues from the sale of state-owned enterprises and revenues from indirect taxes due to growing domestic consumption should contribute to this.
The managing bank and at the same time the body responsible for regulating the country’s financial and monetary policy is the State Bank of Vietnam (State Bank of Vietnam). In addition to the central bank, a total of 48 banks operate in Vietnam today: 5 state-owned commercial banks (Bank for Foreign Trade of Vietnam – VIETCOMBANK, Bank for Investment and Development of Vietnam – BIDV, Industrial and Commercial Bank of Vietnam – VIETINCOMBANK, Vietnam Bank for Agriculture and Rural Development – VBARD, Mekong Housing Bank), 34 commercial banks – joint stock companies, 5 joint ventures, 5 banks wholly owned by a foreign owner. In addition, there are 100 branches or representative offices of foreign banks, 18 financial companies (including the Czech Vietnam PPF Finance Company – Home Credit), 12 financial leasing companies and almost 1,100 cooperative credit funds.
The current banking system has been operating since 1990, when the Ordinance on the State Bank of Vietnam and the Ordinance on Banks, Cooperative Credit Institutions and Financial Institutions were adopted. The main contribution of these laws was the separation of the central bank from commercial banks and the authorization of joint-stock banks and other financial and credit institutions.
The banking system has been gradually consolidated over the past five years, there has been a reduction in bad debts or bad debts and a number of mergers and acquisitions in the sector. The banking sector is open to foreign investors. Foreign investors can create 100% foreign-owned banking companies in Vietnam. The condition for the establishment of such banks is the existence of an agreement between the Vietnamese state bank and the central bank of the investor’s country. Great Britain, Australia, Russia, South Korea, Malaysia and Taiwan have so far signed this agreement.
Vietnam’s income tax burden is among the largest in the Southeast Asian region, even after the latest amendment to Vietnam’s three main tax laws (the Personal Income Tax Law, the Corporate Income Tax Law and the Value Added Tax Law).
The current tax system includes the following types of taxes:
Corporate income tax
The unified basic corporate tax rate (domestic and foreign) is 20%. Lower rates of 17, 15 and 10% can be applied if certain conditions are met. The conditions are defined by listing the fields of business, the areas in which the legal entity operates, the number of employees and the amount of their income. The Income Tax Act also defines the conditions, amount and duration of tax holidays.
Personal income tax
Progressive tax rate of 5-35%. The highest rate of 35% is applied to monthly income exceeding VND 80 million (approx. CZK 80,000). Anyone who stays in the country for more than 183 days a year or rents real estate in Vietnam for more than 90 days a year is considered a taxpayer permanently residing in Vietnam (resident).
Value added tax
VAT rates are 10% (basic rate temporarily reduced to 8%), 5% (concessional). A special form of VAT is the Special Sales Tax on some luxury goods (cars, alcohol, cigarettes) in the amount of 5-150%. In order to apply the VAT deduction, all expenses exceeding VND 20 million must be made by bank transfer.
Tax on natural resources
The Natural Resources Tax is applied to projects dealing with the extraction of oil, gas and timber and rare or valuable mineral resources (coal, gold, gems). Its range is 1% – 40%, depending on the type of project and its location.
Land use tax
Companies with foreign capital participation that have been allowed to use land or water for the purpose of implementing their projects are required to pay Land Use Right Tax. The rates of this tax are determined by the Ministry of Finance.