How does EVFTA impact on State revenue?

Import and export activities at Hai Phong Port. Photo: N.L

Tariff cuts to boost trade

According to the Import and Export Duty Department (under the General Department of Vietnam Customs), the signing of a free trade agreement with the European Unionnot only helps Vietnam avoid dependence on traditional markets but also diversifiesexport markets, especially trade goodwill  from new markets, ensuring Vietnam’s economic security. The trade balance is forecast to increase sharply andthere will be a shift from trade deficit to trade surplus in the medium and long term.

Overall, tariff cuts will increase trade turnover. Tax rates of import and export goods will be reduced and import-export turnover will increase.

Specifically, in 2015-2019, exports from Vietnam to the EU increased by 10%. When implementing the EVFTA, Vietnam commits to eliminate most tariffs on exports to the EU according to a 15-year roadmap.

The remaining important commodities will retain export tax and apply an export ceiling rate. The EVFTA will help Vietnam’s export turnover to the EU increase by 42% in 2025 and 44% in 2030 compared to the scenario without an agreement.

It is expected the export growth rate of some key commodities from Vietnam to the EU will be as follows:

For manufacturing and processing industries such as textiles, the growth rate will increase by 67%; garment and clothes increase by 81%, leather and footwear increase by 99% by 2025.

For agricultural products such as rice, export growth rate will increase by 65%, refined sugar by 8%; pork, cattle and poultry meat and cattle and poultry meat products increase by 4%; forestry products jump3%; and beverages and tobacco increase by 5% by 2025.

For fishery products, the EVFTA will bring a great potential market for Vietnam’s fishery exports. The fishery exports to the EU areexpected to increase an average rate of 2% per year for 2020-2030, while imports from the EU may increase higher (between 2.8% -5%).

For the textile industry, exports to the EU areexpected to sharply increase by 67% by 2025. The EVFTA has a positive impact on the growth rate of textile production of about 6 % and the garment industry about 14% by 2030.

The leather and footwear industry has positive signals as when the agreement takes effect it will contribute to a significant increase in footwear exports to the EU. Export growth rate to the EU is expected to double by 2025, and total exports of leather and footwear will also increase by about 34%, while the industry’s output will increase 31.8%.

Import turnover from EU increases from 7% to 14%

For 2015 -2019, import turnover from the EU to Vietnam increasedfrom 7 to 14%.

When joining the EVFTA, Vietnam commits to eliminating import duties on 48.5% of tariff lines when the agreement takes effect, equivalent to 64.5% of import turnover from the EU and 99% of tariff lines equivalent to 99.8% of import turnover from the EU after 10 years.

For the remaining tariff lines, the elimination roadmap will last for more than 10 years, or Vietnam will give preferential treatment to the EU based on the World Trade Organization (WTO)’s tariff quota. Vietnam’s imports from the EU areexpected to increase by 33% in 2025 and 36% in 2030.

Regarding the total import turnover of Vietnam from the world, Vietnam’s turnover is expected to increase by an average of 4-7% for the first five-year implementation period, 10-15% for the next five-year period and 16 -21% for the next five-year period.

It is estimated the export growth of some major commodities from the EU to Vietnam will focus on vehicles and transport equipment which are expected to gain the highest increase in turnover from the EU, accounting for 12% of total increased import turnover.

Especially for machinery and equipment, Vietnam is a big machinery and equipment importer, while the EU has strengths in machinery and equipment and is Vietnam’s fourth largest import market for this item. As a result, Vietnam’s abolition  of import duties  on machinery and equipment from the EU will boost imports and may decrease imports from other markets due to trade diversion. Because the EU’s machinery and equipment are more technologically advanced than other traditional markets, this may create opportunities for Vietnam to improve domestic production technology. Import turnover of this item is expected to increase by 10%.

According to the Import-Export Duty Department, in addition to advantages, the implementation of the tariff reduction roadmap in the EVFTA will have a two-way impact on the State budget revenue.

Firstly, State budget revenue reduction is due to the decrease in import and export duty. Secondly, the increase in the State revenue is due to additional domestic revenue due tothe positive impact of trade, investment and economic growth.

According to basic calculations of Customs, for the revenue from import-export duty, total estimated revenue reduction from reduced import and export duty under the EVFTA’s roadmap is VND 1,100 billion/year. This will increase gradually according to the agreement’s effect on growth. 

However, according to the Import and Export Duty Department, to more accurately assess the reduction of import tax revenues for EU countries, the General Department of Vietnam Customs will reevaluate the impact of the agreement for revenue from import and export activities when the Import and Export Tariff for commodities of the EVFTA is issued.

Source: customsnews