On the Scale and Structure of State Budget Expenditure for Career Activities.

- Convert geological investigation and exploration activities; measurement and mapping activities belonging to the basic investigation type of the State into taxable subjects, applying VAT rate of 10%.

Thus, up to now, there are still many types of activities of SN units that are not subject to VAT, the units only have to declare and pay VAT for other business and service activities. Therefore, there have been problems such as:

- Expenses for SN activities are not deductible and cannot be refunded for input VAT, while in terms of economic nature, SN activities are completely similar to other business and service activities.

- In reality, there are many expenses that cannot be accounted for separately between expenses for SN activities and business and service activities (for example: electricity, water, telephone, chemical supplies, stationery, etc.). This has led to many units having to "take documents" to account for expenses.

- Creating inequality between public and non-public SN units: while performing the same tasks, public SN units do not pay taxes, while non-public SN units still have to pay VAT. Thus, two situations will occur: either the service price of non-public SN units will be higher (assuming the same quality) because VAT must be added, or the non-public SN units will actually collect lower revenue because they have to deduct the VAT paid to the State budget.

- For some public service units when performing tasks assigned by the State, when approving estimates and finalizing payments, there is no VAT; In reality, that unit does not perform all the assigned work itself, but signs a service contract with another service unit (called Party B) to perform part of the work. At that time, it is also the same service activity, but Party B is determined to be a service activity and must declare and pay VAT, so the actual revenue of Party B has been reduced by the tax portion.

The above issues can be completely resolved satisfactorily when determining that SN activities are also goods and services subject to VAT . To demonstrate the Party and State's policies and guidelines of prioritizing, providing incentives, or supporting and encouraging the development of SN units in accordance with the market mechanism, instead of stipulating that they are not subject to tax, the State should stipulate preferential tax rates, which can be from 0% -5% depending on the type, industry, and area of operation...

2.2.7.2. On Corporate Income Tax:

According to the provisions of the Law on Corporate Income Tax passed by the 11th National Assembly on June 3, 2008, Decree No. 124/2007/ND-CP dated December 11, 2008 of the Government detailing the implementation of the Law on Corporate Income Tax and Circular No. 130/2008/TT-BTC dated December 26, 2008 of the Ministry of Finance, for SN units:

- Taxpayers: SN units with production, business and services.

- Taxable income is income from production and business activities of goods, services and other income.

- SN activities using funds allocated by the State budget (and considered as belonging to the State budget such as: fees, charges, aid...) are considered as performing tasks assigned by the State, not counted as revenue from production and business activities of goods and services.

- SN units only declare and pay corporate income tax if there is income from service activities such as: teaching, vocational training beyond the assigned tasks; medical examination, treatment, consultation... upon request; consulting, investigation, survey services; scientific and technical services...

According to the provisions of Decree No. 43/2006/ND-CP dated April 25, 2006 of the Government: every year after covering expenses, paying taxes and other payments as prescribed; the difference between revenue and expenditure (revenue, regular operating expenses and state-ordered tasks), the unit can use to set up funds, but there is no specific provision on expenses before corporate income tax.

From here, problems have arisen such as:

- For units that cannot separately account for revenue and expenditure of service activities, many expenses for service activities are not declared for VAT and CIT refunds and cannot be determined. Therefore, tax authorities often apply the method of determining VAT and CIT => the amount of tax payable is much higher.

- For units that can separately account for service activities: many SN units have used SN activity expense vouchers to account for service activity expenses to declare and refund VAT. Allocating expenses to increased service activities will reduce profits and corporate income tax; at the same time, the difference between revenue and expenditure of SN activities will increase to have a source to pay additional salaries and set up funds.

- If the SN unit is allowed to account for asset depreciation costs in the SN operating cost before calculating corporate income tax, the unit will benefit more, and have more SN Development Fund resources to reinvest in purchasing more assets. In addition, fully accounting for SN operating costs will be better for correctly evaluating the operating expenses with the output results of SN operations.

The tax issues presented above are clearly demonstrated in the following typical example:

Unit X, in the year, spent VND 21 billion on SN activities (including state budget funds and collected fees and charges), total service revenue was VND 19 billion, output VAT on service activities was VND 1.9 billion. Total cost was VND 38 billion, including: costs directly related to SN activities were VND 8 billion, costs directly related to service activities were VND 5 billion; general costs to be allocated to activities were VND 25 billion (salaries, human resources expenses were VND 11 billion; asset depreciation costs were VND 4 billion, expenses with input VAT were VND 9 billion, other costs were VND 1 billion); input VAT was VND 0.8 billion; these costs were allocated at a rate of 50% for SN activities and 50% for service activities.

Option 1: SN activities are carried out in accordance with current regulations, no VAT is calculated, no input VAT is deducted, no asset depreciation is recorded, the difference between revenue and expenditure is not subject to corporate income tax but is allocated to funds according to internal regulations. According to the calculation results: the total amount of tax payable to the State budget is 1,875 million VND , the amount used to allocate funds is 3,625 million VND .

Option 2: SN activities are still determined to be subject to VAT, but are entitled to a preferential VAT rate of 0%, are declared and deducted input tax, fully accounted for asset depreciation costs, business results are determined in general and full corporate income tax is paid. The result of calculating the amount of tax payable to the state budget is 1,600 million VND (275 million VND less than option 1), the amount used to set up funds is 5,500 million VND (1,875 million VND more than option 1).

Option 3: SN activities are still determined to be subject to VAT, enjoying a VAT rate of 5%. If it is determined that the State budget and SN service users will pay an additional 5% VAT (VND 1,050 million), then the figures on paying to the State budget and setting up funds are still the same as option 2. If it is determined that the unit must pay 5% VAT, and at the same time reduce revenue

1,000 million VND. The result of calculating the tax payable to the State budget is 2,350 million VND , the amount used to set up funds is 4,750 million VND (an increase of 1,125 million VND compared to option 1).

For detailed calculation data, see Appendix No. 03.

2.2.7.3. Regarding Land Use Tax:

According to the provisions of the Ordinance on housing and land tax approved by the State Council on July 31, 1992 and the Ordinance amending and supplementing a number of Articles of the Ordinance on housing and land tax approved by the National Assembly Standing Committee on May 19, 1994; Decree No. 94/CP dated August 25, 1994 of the Government detailing the implementation of the Ordinance on housing and land tax and circulars and documents of the Ministry of Finance guiding the implementation of housing and land tax:

- No land tax is collected on land that is permitted by competent State agencies to be used for public interests, social welfare or charity purposes without business purposes and not for residential purposes such as: land for roads, bridges, parks, cultural houses, stadiums, dikes, irrigation works, schools (including nurseries, kindergartens), hospitals (including infirmaries, clinics, health stations, clinics...).

- Temporarily exempt land tax for land used to build headquarters of State agencies, public service agencies, and social organizations.

From those regulations, most public SN units are not subject to land use tax, thus giving rise to the following problems:

- In essence, this is an expense paid by the State budget to support SN activities (subsidized). Thus, the cost of SN activities has not been included in the service price. Meanwhile, enterprises (that must pay land tax) that provide SN services must still include this expense.

- In reality, because SN units have many more activities, production, business, and services still use SN units' land but do not have to pay land tax. Thus, the State budget has paid tax money for all service activities.

2.3. General assessment of financial policy for the public service sector in Vietnam.

2.3.1. Results achieved.

2.3.1.1. On the scale and structure of state budget expenditures for public service activities.

The outstanding result in the management of state budget expenditures for biological activities during this period was that the funding allocated by the state budget for biological activities increased rapidly in both total amount and there were many changes in the expenditure structure, basically meeting the basic needs of developing biological activities according to the requirements of socio-economic development in the context of limited state budget.

Regarding total regular expenditures allocated by the State budget to SN units:

Social Insurance

Economy

High School Sports and Physical Education

Culture and Information

Science and Technology

Health Education

Billion VND

250,000

200,000

150,000

100,000

50,000

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Chart 2.1. Scale of state budget expenditure for career activities.

Through data analysis in Chart 2.1, it is shown that every year the State budget increases spending on all areas of SN activities; in 1986, the total spending on SN activities was 34 billion VND (5.68% of GDP, 25.56% of regular spending of the State budget), then by 2009 (estimated implementation) it had increased to

207,575 billion VND (12.36% of GDP, 38.94% of regular expenditure of the State budget). The average growth rate of expenditure on public services is 47.27%/year, increasing faster than the growth rate of state budget expenditure (45.33%); in which some areas with rapid growth rates are education and training expenditure at 50.2%/year, health expenditure at 48.23%/year, science and technology expenditure at 46.87%/year... For details, see Appendix No. 02.

On the expenditure structure for the fields of SN :

% GDP/State budget expenditure % GDP/GDP

45%

40%

38.94%

35.45%

35.92%

35%

36.00%

33.64%

33.91%

34.34%

33.98%

35.97%

34.03%

32.88%

31.62%

30%

29.53%

29.37%

25%

25.56%

26.34%

21.74%

24.52%

22.58%

23.93%

23.38%

20%

15%

15.79%

10%

9.58% 9.71%

8.94%

9.47%

11.40 12.36%

8.26% 9.10%

9.15%

11.88%

5.73% 6.09%

8.65%

6.47%

8.81%

9.07%

9.51%

8.73%

5.68%

7.59%

3.23%

5.38%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009 UTH

Chart 2.2. Proportion of state budget expenditure for public service activities.

Through the data in Chart 2.2: the proportion of the State budget spent on child care activities is increasingly accounting for a large proportion of GDP (in 1996 it was 5.68% of GDP, by 2009 it reached 12.36% of GDP); the proportion of spending on child care activities always tends to increase in total State budget expenditure (in 1996 it was 25.56%, by 2009 it reached 38.94%); spending on education, training and vocational training always tends to increase rapidly (in 1986 it accounted for 23.53% of total child care expenditure, by 2009 it increased to 37.81%); spending on medical child care in 1986 accounted for 8.28% of total child care expenditure, by 2009 it increased to 13.39%; Economic expenditures have a clear downward trend (in 1986, they accounted for 41.18% of total expenditures, but by 2009, they were only 12.96%); expenditures on radio and television decreased to 0.85%, and on sports and physical education decreased to 0.70% (see Chart 2.3, Chart 2.4).

100%

90%

20.59%

24.22%

29.53%

29.43%

30.52%

33.23%

80%

70%

16.10%

15.88%

12.96%

60%

41.18%

20.45%

18.02%

2.00%

2.86%

3.53%

1.20%

0.85%

0.70%

0.92%

50%

3.09%

1.76%

4.50%

2.03% 0.55%

2.34%

2.89%

1.96%

2.52%

3.41%

1.54%

2.22%

11.04%

13.39%

40%

10.99%

1.06%

2.94%

11.94%

14.16%

30%

8.82%

20%

39.05%

37.81%

34.74%

28.65%

23.53%

25.97%

10%

1986

1990

1995

2000

2005

2009 UTH

Social Insurance

Economy

Sports

PTTH

Culture and Information

Science and Technology

Medical

Education

Chart 2.3 - Structure of state budget expenditure for SN activities.

45%

41.67% 40.46%

40% 41.18% 39.21% 37.74%

38.70% 39.56% 37.81%

34.28% 34.17% 35.35%

35%

30.97% 34.05% 30.75%

30% 30.62% 30.91% 28.65% 31.10% 28.19% 30.52%

26.14% 28.23% 29.43% 26.93% 29.85%

25.10% 25.97% 27.13% 26.39%

25% 23.53% 25.78% 24.01%

22.42% 24.22%

20.45% 20.58%

20%

20.59% 18.33% 18.02% 16.43% 16.10%

14.86% 15.41% 15.88% 16.39% 14.77% 15.10%

15% 12.97% 13.99% 13.39%

12.80% 14.46% 12.07% 14.40% 11.28% 13.02%

10.83% 11.94% 12.54% 11.83% 12.96%

10% 11.64% 10.64% 9.78%

8.82%

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

UTH

Education Health Economics Social Security

Maybe you are interested!

Chart 2.4 - Trends in changing the structure of state budget expenditure for some public service activities. Source : Vietnam's financial statistics over 20 years of renovation 1986-2006, Hanoi Publishing House - 2007 [22, p. 76] . Financial Statistics Yearbook 2007, Hanoi Publishing House - 2008 [23, p. 64, 65].

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