Principles and criteria for allocating value-added tax across localities, 2027–2030

Deputy Minister of Justice Nguyen Thanh Tu chaired the appraisal council for the draft resolution of the Standing Committee of the National Assembly regulating the principles and criteria for distributing value-added tax to each locality for the 2027–2030 period. At the event on the afternoon of April 6, Deputy Minister of Finance Nguyen Duc Chi — the representative of the drafting unit — said the draft Resolution comprises seven articles, defining the principles and criteria for distributing the value-added tax in the local budget share received by each province and centrally governed city in accordance with point e, paragraph 2, article 36 of the 2025 State Budget Law. The VAT to be distributed does not include VAT from oil and gas exploration and production activities; VAT from foreign suppliers of goods and services; and VAT from lottery activities. The draft proposes three main criteria groups: population, natural land area, and per-capita GRDP, quantified by a specific point system. Data used are statistics from the year preceding the budget-estimate year, published by the statistical agency. In 2027–2030, annually, based on these criteria, the competent authority determines the total points for each locality, from which the distribution ratio and budgeted VAT share are calculated. This ratio applies throughout budget execution and is decided by the National Assembly. The actual distribution is implemented promptly, in accordance with regulations, based on revenue and tax refunds arising. During the meeting, Mr Le Quoc Dat, Deputy Director of the Division handling inspection, settlement of complaints and denunciations in the financial and banking sector (Department VI) of the Government Inspectorate, essentially agreed with the draft Resolution, while proposing a number of items to be further improved. According to Mr Le Quoc Dat, Article 38 of the 2025 State Budget Law provides that “tax from lottery activities is 100% local revenue.” Therefore, he suggests the drafting agency review and remove the phrase “tax from lottery activities” in Article 1 of the draft Resolution to avoid duplication with the 2025 State Budget Law. Regarding allocation principles, Mr Le Quoc Dat notes that the draft Resolution has defined specific principles for distributing value-added tax to each locality. However, VAT distribution needs to be reconsidered comprehensively to ensure balanced benefits across regions, transparency, stability, and development incentives. Mr Dat also argues that when constructing budget allocation criteria, it should align with the objective of balanced regional development under the State Budget Law. However, overreliance on indicators like GDP or GRDP could lead wealthier localities to benefit more, while poorer localities struggle to develop. Therefore, Mr Dat proposes adding more criteria or introducing a mechanism to prioritize hard-hit localities to ensure fair distribution and promote even regional development. In concluding, Deputy Minister of Justice Nguyen Thanh Tu urges the drafting agency to clarify the scope of regulation, including justification for excluding three special revenue sources. In addition, continue to refine the principles and criteria for distribution, enhance coordination with ministries, sectors, and localities, and especially clarify the principle of “where consumption arises” to ensure feasibility and reasonableness. The State Budget Law No. 89/2025/QH15 defines “value-added tax (excluding VAT refunded under the VAT Law) to be distributed: 70% for the central budget and 30% for local budgets.” The distribution to each locality based on the principles and criteria for each stage will be considered by the Standing Committee of the National Assembly. 2027 will be the first year of VAT distribution to each locality under the new rules. The Ministry of Finance proposes applying the resolution for the four-year period 2027–2030.