Enterprises have responded to tax authorities reforming their operations by improving compliance but issues remain.

As Vietnam’s taxation sector accelerates its reform efforts and digital transformation,
local businesses have made notable strides forward in tax compliance over recent
years. According to the General Department of Taxation (GDT) at the Ministry of
Finance, 99.6 per cent of enterprises now file taxes online, 98.9 per cent make
e-payments, and the system has processed nearly 19 billion e-invoices. All tax refund
procedures are also handled entirely through digital platforms. These figures highlight
the deep penetration of digitalization in tax administration, helping to significantly
cut compliance costs and time. Yet behind these advances in administrative reform,
the country’s fiscal health still faces significant challenges.

Strengthening fiscal foundations

At the recent “Promoting self-compliance and full tax contributions – Building
a strong era” workshop, held recently by the GDT, Mr. Frank van Brunschot, Senior
Economic Expert in the Department of Fiscal Affairs at the International Monetary
Fund (IMF), said Vietnam’s tax-to-GDP ratio in 2024 was estimated at around 13.1
per cent; well below the IMF’s recommended minimum of 15-16 per cent to ensure sustainable
growth.

International experience shows that economies maintaining a tax-to-GDP ratio
above this threshold tend to achieve more stable growth and greater resilience to
global shocks. According to Mr. van Brunschot, a low ratio not only narrows fiscal
policy space but also limits the government’s capacity to invest in key sectors
such as infrastructure, education, and social welfare.

After the pandemic and a prolonged period of crises, many countries have been
forced to increase public spending to drive recovery, while rising interest rates
and growing fiscal risks are tightening the room for new borrowing. This makes the
need to strengthen State revenue even more urgent, though raising tax rates is far
from an easy fix.

Economically, higher taxes can undermine competitiveness, discourage investment,
and slow growth. Socially, heavier tax burdens often face strong pushback from businesses
and citizens, especially in a fragile post-crisis recovery period.

That’s why, he stressed, the key challenge for many countries lies not in raising
tax rates but in improving the efficiency of domestic revenue mobilization – boosting
collection without adding pressure on the economy. This requires comprehensive institutional
reforms, stronger tax administration capacity, and an expanded tax base to ensure
fairer burden-sharing among taxpayers.

Mr. van Brunschot pointed to compliance risk management as one of the most
effective solutions. A risk-based approach allows tax authorities to focus resources
on high-risk groups, improve transparency, and strengthen public trust. Evidence
shows this model has worked well in countries such as Australia, Poland, and the
Philippines – enhancing revenue performance, cutting compliance costs, and increasing
business satisfaction.

From a global perspective, the challenge for Vietnam is not simply to “collect
more” but to “collect more sustainably” – built on understanding and voluntary compliance.
Ultimately, effective tax collection depends on trust. Without it, even the most
modern reforms risk falling short.

Bridging the compliance divide

Mr. Hoang Quang Phong, Vice President of the Vietnam Chamber of Commerce and
Industry (VCCI), said incorrect or delayed tax filings remain widespread, partly
because many companies still struggle to keep up with new regulations. In 2024,
tax authorities conducted over 62,900 inspections and audits, recommending financial
settlements totaling VND62.7 trillion ($2.4 billion). Some back taxes reached hundreds
of billions of VND, especially in high-risk sectors like real estate, construction,
and imports-exports.

The booming e-commerce market has also emerged as a hotspot for violations,
with more than 33,000 cases handled in 2024 and back taxes and penalties totaling
nearly VND1.4 trillion ($56 million). Meanwhile, tax arrears remain a growing concern,
rising 12 per cent year-on-year to VND219.6 trillion ($8.4 billion) by the
first quarter of 2025, about 40 per cent of which is considered recoverable.

Transfer pricing and false loss reporting continue to plague foreign-invested
enterprises (FIEs). In 2024, authorities inspected 711 enterprises engaged in related-party
transactions, mostly FIEs, collecting over VND1.6 trillion ($61 million) in additional
taxes and penalties, eliminating VND8.6 trillion ($327 million) in false losses,
and adjusting taxable income upwards by nearly VND5 trillion ($190 million). These
figures underline the difficulty of detecting and managing complex cross-border
transactions.

The gap between policy and practice is also evident in the varying levels of
tax compliance across business groups. While compliance behavior reflects intent,
compliance capacity depends on each firm’s ability to meet tax obligations under
its specific conditions, anchored on three key pillars.

First, in terms of
understanding and applying tax laws, digital transformation has improved access
to information. However, the ability to interpret and apply evolving regulations
remains limited, particularly among small and medium-sized enterprises (SMEs) that
lack specialized tax staff or skilled personnel.

Second, regarding
management capacity, digitalization has improved transparency in accounting and
financial oversight but demands stronger operational skills. In practice, most SMEs
still operate under ad-hoc accounting models, relying on individuals or outsourced
service providers. This weakens internal control, fragments data systems, and limits
the early detection of violations.

Third, and most importantly, is trust
and cooperation between businesses and tax authorities. Companies
with in-house tax departments tend to comply better thanks to transparent record-keeping
and clearer reporting. In contrast, most SMEs depend on individual accountants and
lack centralized data, leaving them more vulnerable to unintentional errors.

Rebuilding trust

To narrow the gap between policy and practice, experts say tax reform must
go beyond technical tweaks or tougher penalties. The real priority, they argue,
is to rebuild taxpayer trust – because fairness, transparency, and partnership between
authorities and businesses form the foundation of a modern, sustainable tax system.

According to Associate Professor Le Xuan Truong, Head of the Faculty of Taxation
and Customs at the Academy of Finance, fairness is central to fostering voluntary
tax compliance. Fairness should be viewed in two dimensions: vertical fairness –
where higher-income earners contribute more, and horizontal fairness – where people
in similar circumstances bear the same obligations.

He noted that while some adjustments have been made, current tax policies have
not kept pace with changes in income and prices. He added that the progressive tax
brackets also need revision to prevent middle-income earners from being pushed into
higher bands, reducing incentives to work and save. The current framework applies
rates from 5 to 35 per cent on annual incomes between VND60 million and VND960 million
($2,300-$36,500). After a decade in which average incomes have nearly quadrupled,
this structure is outdated. Likewise, taxes on securities transfers should be based
on actual profits rather than gross revenue to reflect true tax capacity and encourage
long-term investment.

Ms. Nguyen Thi Cuc, Chairwoman of the Vietnam Tax Consultants’ Association,
said improving compliance requires a mindset shift, from “control and supervision”
to “support and partnership”. A well-functioning tax ecosystem, she noted, not only
reduces business costs but also saves resources for the State, strengthening sustainable
revenue collection.

However, she added that administrative penalties remain inflexible, with little
distinction between the scale or severity of violations. She proposed adding automated
tax reminders to e-filing and e-payment systems, helping individuals and small businesses
meet deadlines and avoid any accidental violations.

Ms. Cuc also emphasized that stronger tax compliance depends not only on policy
reform but on institutional efficiency and fair enforcement. Small businesses, she
noted, face mounting non-tax costs, from market management fees to food safety inspections,
which add to their financial pressure. “Reducing these extra costs would motivate
small traders to comply more fully with their tax obligations,” she believes.

Ultimately, she continued, even the best policies will fail to earn public
trust without transparency in enforcement. Ensuring fairness across taxpayer groups,
cutting unnecessary social costs, and improving administrative openness are essential
to building a culture of voluntary compliance.

VET-Lan Nhi