Vietnam 2013

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Actual State Budget expenditure deviated from the initially approved amount by more than 10% in two of the three years analysed. (p. 25)

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The calculated composition variance exceeded 15% of actual expenditure in each of the three years. Variances were 17.0%, 23.6% and 19.8% in 2008, 2009 and 2010 respectively. (p. 27)

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The contingency provision subsequently allocated to particular programmes was on average less than 3% of budgeted expenditure each year. (p. 27)

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Actual State Budget domestic revenue collection exceeded the budgeted amount by more than 16% in two of the three years. (p. 30)

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The Central Treasury and Treasury offices in each province maintain substantial cash balances, to ensure that there are no payment arrears in respect of any eligible expenditure satisfying all conditions for payment in compliance with the provisions of the State Budget Law. But there is evidence of commitments being undertaken at province and district level in advance of budgetary provision being made available. (p. 32)

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The extent of the cash float has been seen as rendering arrears monitoring unnecessary. But the evidence from VCCI and other sources of the existence of unregistered commitments suggests that more needs to be done to keep track of the situation. (p. 32)

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The Chart of Accounts underlying the system of budget classification should enable information to be recorded about the economic, functional, administrative unit and, program characteristics of each transaction, in a way which is fully consistent with GFS/COFOG. But the system has not hitherto been used to present consistent breakdowns of revenue and expenditure at budget and out-turn stages. (p. 34)

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The budget documentation is considered to contain 5/9 elements of information listed in the PEFA criteria. But inter-fiscal-year transfers of revenues and expenditures preclude consistent comparisons between budget and out-turn and from one year to the next. (p. 35)

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There are over 30 extra-budgetary Financial Funds carrying out functions of government. The two major Funds with biggest spending are the obligatory Social Insurance Fund and the Health Insurance Fund; together they accounted in 2009 for about 95% of the total expenditure of the extra-budgetary Funds. In the period of 2007-2009, expenditure from extra-budgetary Funds, which was reported only at the out-turn stage, was equivalent to approaching 8% of the total budget expenditure. (p. 37)

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In Vietnam, basically all the external loan and grant finance received by agencies and units of the Government is included in the fiscal reports. The only exceptions are the small amounts paid directly by donors to third parties outside Vietnam (e.g. for technical assistance). (p. 37)

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Currently, the equalization transfers to sub-national governments are implemented by using a relatively transparent and clearly defined system of budget allocation norms. In addition, most of the supplementary targeted transfers to meet specific recurrent and capital expenditures are also implemented by applying a system of budget allocation norms. However, there are some supplementary targeted transfers to sub-national governments that are not based on objective criteria. These are transfers to meet the costs of specific civil engineering works, projects and special mandates of some sub-national governments. It is estimated that such transfers accounted on average for about 9% of the targeted transfers and about 6% of the total value of transfers from the Central Government to sub-national governments in 2008-10. (p. 40)

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Revenues of sub-national governments are largely determined by their share of national tax receipts (fixed for stability periods of up to 5 years) and of equalization and supplementary transfers from central government (largely determined by the operation of objective criteria). Thus sub-national governments have most of the information they need to prepare their budgets in parallel with the budgets of central government agencies. But they only have full information when the State Budget proposals, including all information about central government transfers, are submitted to the National Assembly in October each year. Final decisions are then taken by People’s Councils once the NA has approved the State Budget. (p. 41)

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The State Budget proposals put to the NA incorporate the Government’s expectations about the budgets of provinces and districts, and include a sectoral breakdown of expenditure. The national Treasury system through which budgets at all levels of government are executed collects consistent information about the sectoral and economic breakdown of actual expenditure. However, the consolidation of the expenditure out-turn information currently takes more than a year. (p. 41)

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Agencies carrying out Government functions (other than those whose operations are carried out through extra-budgetary funds) are generally subordinate to either central or sub-national governments: their operations are fully integrated into the budgetary system, and their limited financial autonomy does not pose fiscal risks for the Government. For SOEs, the existing regulations require them to submit their financial statements and operational reports to the parent agencies and Finance Departments, and thence to the Ministry of Finance at Central level for consolidation and reporting to the Government and the National Assembly. The latest reports (for 2006-10 and 2011) contain detailed information about the fiscal risks resulting from the capital structures and economic performance of different SOEs .Important steps have already been taken to restrict SOEs’ freedom to undertake activities which could pose risks for the Government, detailed reporting has been improved in response to requests from the National Assembly, and further action is being undertaken to strengthen central monitoring and supervision of SOEs. (p. 44)

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The outstanding amounts of provincial borrowings, according to the State Budget Law, must be reported annually to the Ministry of Finance for consolidation and reporting to the Government and, the National Assembly. The amounts outstanding are regularly monitored by MoF; the total outstanding debt of sub-national governments was well under 1% of total government debt at the end of 2011. But there is evidence of significant outstanding commitments on capital projects at province/district level, about which the centre does not have full and consistent information. (p. 44)

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The general public has full access to information covering four of the six PEFA benchmarks. But the meaning and value of some of this information is undermined by the uncertainties created by the treatment of carry-over (see PI-5 and 6 above), and there are considerable delays before annual financial statements and audit reports on them are published. (p. 47)

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The calendar for annual budget preparation is clearly specified in the regulatory documents providing implementation guidelines for the State Budget Law. This calendar allows budget spending units six weeks for submission of their budget drafts following receipt of the budget preparation guidance document. However, as the guidance documents are often issued late, plus the time for the circulation of the documents, ministries, agencies and sub-national governments often have only about 4-5 weeks for the preparation of their budget drafts. (p. 49)

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The Prime Minister’s Directive and MoF (in respect of recurrent expenditure) and MPI (in respect of capital expenditure) Circulars clearly specify the requirements, contents and timing for budget draft preparation and include the provision by MoF/MPI of indicative revenue – expenditure budgets for ministries, agencies and sub-national governments to facilitate them in their budget draft preparation. However, these indicative budgets are not discussed within the Government and therefore do not serve as ceilings within which spending units should prepare their budgets: rather they serve as a basis for negotiations between MoF/MPI and spending units before the consolidated proposals are approved by the Government and submitted to the National Assembly. (p. 49)

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In the 3 most recent years (Budgets for 2010-12), the National Assembly approved the budgets by 15 November in compliance with the applicable legislation. (p. 49)

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No forward estimates of fiscal aggregates have been prepared in the context of formulating each successive year’s annual budget. (p. 52)

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Debt sustainability analysis has been undertaken annually, with the assistance of the IMF/World Bank. (p. 52)

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Sector strategies for the medium-term development of a number of main sectors (Health, Education, Agriculture, and Transport) have been prepared, but these are not consistent with aggregate fiscal projections. (p. 52)

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Budgeting for investment and recurrent expenditure are separate processes, and there is still limited coordination in considering the future recurrent costs of maintaining and operating the assets/facilities created as a result of decisions on specific investments. (p. 52)

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Taxpayers’ rights and duties are generally clearly defined in legislation, including the Tax Administration Law and Laws on major taxes such as the VAT Law, Corporate Income Tax (CIT) Law and Personal Income Tax (PIT) law. The different taxes are being reviewed with the objective of increasing simplicity, understandability, and operability; so that taxpayers can more readily understand and comply with their tax obligations. However, the business community, represented by VCCI and tax advisers, confirms that significant problems remain in the detailed operation of the system, e.g. in determining which VAT rate should be applied to particular goods, or whether particular expenditure is deductible against CIT. In the absence of sufficiently detailed operating instructions and of any central supervision of such questions, different tax offices may give different interpretations on the same question. (p. 55)

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Most information on tax liabilities and administrative procedures is fully and comprehensively published in many forms (website, publication, leaflets, and mass media). There are Taxpayer Communication and Support Services at the General Department of Taxation whose function is to educate and assist taxpayers in the implementation of tax policies, and tax administration procedures. Information about customs duties is readily available on-line. However, the decentralization of tax administration and the incomplete central integration of information mean that different interpretations may be given by different tax offices. (p. 55)

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There is not yet a network of independent bodies to address tax appeals, other than the Administrative Court. Until recently, before any appeal to the Administrative Court, taxpayers had first to appeal to a senior office in the Taxation or Customs Administration hierarchy, in accordance with the process of appeal handling of the Tax and Customs authorities. If they were not satisfied with the result, they could appeal to the Administrative Court. Direct appeals are now allowed to the Administrative Court, which is understood to have heard numerous cases. However, VCCI and tax advisers consider that most taxpayers are reluctant to appeal to the Court, in whose independence they have little trust, because they fear that subsequently they would be more likely to be exposed to difficulties in future dealings with the tax offices, to which they are directly subject. (p. 56)

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Most registered taxpayers have a unique Taxpayer Identification Number (TIN) which is used for all taxes they have to pay. However, it appears that many small entrepreneurs (whose tax obligations are estimated to account for less than 2% of total State budget revenue) have not registered for business license and tax ID. The Tax Registration System is now centralized in the General Department of Taxation, and links with other information systems of the Ministry of Finance, and the Business Registration System. But there are no links to the Social Security Agency database, or to databases of other agencies. (p. 60)

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Although tax offices were instructed in 2007 to select taxpayers for audit and inspection on the basis of risk factors, it was only in 2011 that the General Department of Taxes issued a centralized model for the application of risk assessment, together with an IT application .The General Department of Taxation has issued Decision No. 1519/QD-TCT, on the use of taxpayer risk analysis application (TPR) in tax inspection planning. (p. 60)

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Penalties for non-registration and late payment are relatively ineffective. But the penalties for under-declaration can be as high as five times the unpaid tax, and are considered by the tax Departments as effective in the prevention of inaccurate declarations. (p. 60)

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GDT data show arrears to have fallen from 9.5% of annual collections in 2008 to an estimated 7.9% for 2011. Customs put current arrears at about 2.25% of 2011 collections. There are legal regulations to limit write-offs. According to the Hanoi provincial office, tax arrears are not a significant problem because of the extent of the authorities’ coercive powers to freeze bank accounts, withdraw business licenses, etc. But GDT recognise that the identification and management of arrears by local tax offices needs further improvement. (p. 63)

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All tax revenue is paid directly into Treasury accounts on the day it is received, with the exception of small amounts collected in remote areas where there are no banks, where arrangements ensure that funds reach the Treasury within 5 days. (p. 63)

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Local tax offices carry out detailed reconciliations daily and monthly between their records of payments received from individual taxpayers and the Treasury records of revenue receipts. Differences between assessments (most of which are self-assessments) and payments are reconciled monthly. (p. 63)

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The target cash balances kept in each Treasury account, combined with the normal under-estimation of revenue and the central Treasury’s ability to mobilise cash whenever necessary, have enabled MoF to assure spending units at all levels of government that cash will be available to meet their approved expenditures throughout the year. (p. 65)

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A major in-year revision of the approved Budget must be initiated by the Government and submitted for approval by the National Assembly (Article 43 of Decree 60/2003 on Implementation of the State Budget Law). In urgent cases or for lesser revisions the decision can be made by the Standing Committee of the NA. There have been no recent cases where substantial reductions in approved budgets have been imposed in the course of budget execution without full discussion in the NA. (p. 65)

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An overall quarterly cash flow plan is developed by the central Treasury, based on experience and historical patterns as well as information from spending units. All Treasury accounts at the centre and in each province and district are monitored and forecast on at least a quarterly basis, so that action can be taken by the Treasury to ensure that cash is available to meet known exceptional payments. (p. 65)

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External debt data records, including government-guaranteed debt, are complete subject to a delay of up to 3 months for the receipt of disbursement notifications, and regularly reconciled. Information on domestic debt issuance is fully updated, and MoF has full information about provinces’ debt (updated annually). Consolidated reports on borrowings are submitted to the Government quarterly, and reported to the National Assembly every 6 months Reconciliations between MoF data and corresponding bank data are carried out only annually. (p. 67)

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The Treasury has daily information about most government cash balances throughout the country, but holdings by extra-budgetary funds and some balances arising from charges for services are outside the Treasury system. The holding of substantial balances in each Treasury office means that cash management is sub-optimal. (p. 67)

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The contracting and guarantee of external loans is the responsibility of the Debt Management and External Finance Department (DMEFD) of MoF. Only in 2011 has the control of guarantees for domestic borrowing been formally systematised under MoF, although in practice MoF has been controlling such guarantees informally, by analogy with the procedure already established for external borrowing. Debt management has hitherto been planned in accordance with the medium term debt management programme 2009-12, which is restricted to external debt. The new strategy for the period to 2020 covers both external and domestic debt, and DMEFD has recently been given the coordinating responsibility for debt management policy as a whole. This strategy is expressed in terms of debt levels in relation to GDP, but it is not directly linked to fiscal targets. (p. 67)

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Personnel management and the payroll are highly decentralised in Vietnam SR, with each Ministry and province being responsible for personnel records and payroll administration. There are no automatic links between personnel and payroll databases in most agencies, with changes to the payroll (reflecting appointments, promotions, etc.) entered manually by payroll staff on instructions from personnel departments on the basis of full documentation. (p. 70)

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Payroll aggregate allocations are fixed for periods of 3 months, with payroll records being fully updated quarterly. In the interim there may be delays in updating the payroll, which result in a limited number of retrospective adjustments to individuals’ pay. (p. 70)

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There is strict high level managerial supervision of changes to personnel records which can give rise to changes in pay and allowances received by individuals. (p. 70)

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MoF and sectoral Ministry inspectorates carry out regular staff inspections throughout the country, in which personnel and payroll records are checked and reconciled. In addition the State Audit Agency (SAV) as part of its regular audit work selects the pay of a sample of individuals in each Ministry or lower level unit for thorough audit testing each year, including cross-references to personnel records, in order to verify the accuracy of salary payments and their consistency with personnel records. (p. 70)

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Three of the six benchmarks relating to the legal and regulatory framework are fully met, but the other three are only partially satisfied. (p. 72)

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The law permits a number of exceptions to the operation of open competition, (with about a third of contracts by value being let directly without competition in 2009 and 2010). Compared with international practice, the threshold for direct contracting is higher, and in many cases direct contracting is applied beyond the threshold. (p. 73)

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Procurement plans, tendering opportunities and contract awards (above a threshold of VND 2billion, equivalent to US$100,000) are published in MPI’s Procurement Gazette and on the Ministry’s website. However, no information is published about the results of procurement complaints. (p. 73)

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A dedicated body has been established to review admissible complaints, referred to as the Advisory Panel, which is chaired by a representative of the State agency in charge of procurement and includes members representing the relevant authorities and related professional bodies. While this body meets the basic requirement for independence, it lacks authority to suspend the procurement process. (p. 73)

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Circular No. 113/2008 of the Ministry of Finance already provides the legal basis for the introduction of commitment controls, but these will only become effective once TABMIS is in full operation throughout the country (it is expected that full implementation of commitment controls will be started from the 2013 budget year). Once the mechanism for commitment controls is in operation, it will play an important role in ensuring that budget allocation priority is given to commitments previously undertaken. (p. 76)

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There are detailed rules in force covering expenditure decisions at different stages, and for different types of payment. Controls within spending units appear to be functioning satisfactorily, in so far as preventing unauthorized payments is concerned. However, there are significant problems in contract management, in determining the amounts of payments under contracts where the managers insist on the application of cost norms inconsistent with market conditions, and in securing prompt payment when managers exploit administrative procedures in order to justify delays in payments. The Treasury point out that some procedural rules in earlier decrees (e.g. Circular 79/2003) have been overtaken by changes in the operational environment. (p. 76)

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Clear rules are laid down for the processing and recording of payments by the Treasury. Evidence has to be provided that payments have been correctly authorised within the spending unit concerned, and, where applicable, that correct procurement procedures have been followed. Very few payment instructions are rejected by the Treasury. Data are recorded in the Treasury system such that reports of the aggregate progress of budget execution can readily be produced. (p. 76)

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A separate Internal Audit (IA) function has so far been established only in MoF, the Ministry of Defence and the State Bank of Vietnam (SBV). (p. 79)

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A relatively small number of IA reports have so far been issued to the managements of the three pilot agencies concerned. The State Audit Agency said it already makes use of these reports in its audit work in the bodies concerned, but does not receive them automatically, as there is currently no requirement for that. (p. 79)

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It appears that the recommendations have so far been positively received, and the IA units are making appropriate arrangements for follow-up. But only a very small part of total government activity has so far been covered. (p. 79)

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Each Treasury office carries out a daily reconciliation between its records of receipts and payments and the records of the bank accounts through which they pass (at SBV in the case of Ministries and provinces, and at commercial banks in the case of districts). But there is no assurance that comparable reconciliations are carried out in respect of government-controlled bank accounts outside the Treasury system. (p. 81)

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The TABMIS system enables sufficient information to be recorded about each transaction as to largely eliminate the need to keep amounts in suspense accounts, although the position may be less clear in those provinces not yet covered by TABMIS. Advances to officials for travel, etc. have to be cleared within a month, and there are no indications from auditors that this is not being complied with. (p. 81)

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Each school and health service provider at grassroots level has its own budget set by reference to expenditure norms based on pupil numbers or numbers of patient beds. These budgets and subsequent execution statements are published in accordance with the rules on transparency of Government operations. (p. 82)

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The Treasury system (TABMIS throughout most of the country and KTKB where TABMIS has not yet been installed) makes it possible to generate monthly reports of aggregate revenue and expenditure of all levels of government. But since there is as yet no system of controls over commitments, the information on budgetary expenditure is captured only at the payment stage. Moreover the inconsistent reporting of the expenditure carried over from the previous year, and expenditure charged against the current year’s appropriations makes it difficult to compare execution reports with the original budget. (p. 83)

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Reports are available monthly in the fourth week of the subsequent month. (p. 83)

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The reports are derived directly from Treasury operations, and are reliable where derived from TABMIS. Hitherto the reports have not included any functional or economic breakdown of the expenditure financed by revenue carried forward from the previous year. (p. 83)

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A consolidated Budget Execution statement is prepared annually, covering revenue and expenditure at all levels of government including borrowing and debt service. But no information has been included about financial assets, and the treatment of expenditure carried over from the previous financial year adds to the difficulty of interpreting the statements. (p. 84)

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The Budget Execution statement has been submitted for audit 14 months after the end of the year to which it relates. (p. 85)

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Statements are presented in a consistent format over time in accordance with Vietnam accounting policy regulations which are not consistent with IPSAS. (p. 85)

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Although the State Audit Agency (SAV) performs a wide range of audit work in accordance with international standards, resource limitations have restricted the annual coverage of its audit to no more than 60% of central government departments and sub-national levels. (p. 86)

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The SAV report on each year’s budget execution has been submitted to the NA within three months of its receipt of the budget execution statements from the Government. (p. 86)

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SAV findings are discussed with auditees, and SAV keeps track of the extent to which its recommendations are implemented by them. It assesses that its recommendations are basically implemented, and that the consequent savings are several times greater than the costs of the audits. (p. 86)

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The outline of the following year’s Budget, and the macro-economic background to the proposals is presented by the Government to the NA by 1 October each year, but little attention is paid to the medium-term fiscal framework. Following initial review by the NA Finance and Budget Committee and Standing Committee, MoF makes any necessary revisions before formally presenting the detailed apportionment to the NA at its session beginning on 20 October. Thereafter the NA may propose amendments to the MoF draft before finally approving the Budget by 15 November. Significant amendments have been made to the Government’s budget proposals on the insistence of the NA. (p. 88)

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The procedures for preliminary consultation with NA Committees, following the discussion in plenary session and follow-ups by Committees on possible amendments to the Government’s proposals for revenue, expenditure and the fiscal balance, are well-established and respected. (p. 88)

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Allowing that the process starts with the preliminary presentation to NA Committees by 1 October, the NA has at least six weeks to work on the Budget before a final vote on or before 15 November. (p. 88)

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Article 49 of the State Budget law requires the approval of the NA for major revisions to the overall budget. Less important changes may be approved by the NA Standing Committee and subsequently reported to the plenary session. MoF (and its counterparts at province and lower levels) may authorise expenditure virement as long as it does not increase overall totals of allocations to spending units. Ministries and departments at different levels of government may adjust the allocations of units subordinate to them provided they keep within the overall total allocations and the amounts allocated to each function after obtaining agreement from the MOF or its counterparts at province and lower levels. If revenue exceeds amounts budgeted, MoF is required to submit proposals for the use of the additional funds to the Standing Committee in March the following year; these are subsequently reported to the NA in plenary session. (p. 89)

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The NA considers the SAV’s report on the antepenultimate year’s budget execution at its May- June session each year, within two months of receiving it from the auditor. (p. 91)

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The Committee of Finance and Budget Affairs uses the SAV’s report on budget execution and its other reports to inform the discussions and enquiries it makes in its annual programme of visits to selected Ministries and provinces. (p. 91)

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The NA normally endorses the SAV’s recommendations in considerable detail in its resolution on budget execution, although it has not formulated any detailed recommendations of its own to the government. (p. 91)

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Total Budget Support was close to the estimate in 2008, and greatly exceeded it in 2009, but fell more than 10% short in 2010. It fell more than 10% short in only one of the three years over 2008-2010. (p. 93)

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It does not appear that donors provide any information about the quarterly path of their disbursements. (p. 93)

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Disbursements primarily depend on the speed of execution of the projects/programmes by the Vietnam authorities concerned. Since the flow of information is primarily from the Vietnam authorities to the development partners, rather than the reverse, dimension (i) is not really applicable to the Vietnam situation. (p. 94)

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Donors responsible for more than 70 per cent of project financing provide immediate reports of their actual disbursements, most of which take place through the Treasury which thus already holds the necessary information. (p. 94)

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The percentage of aid funds from the three main donors managed through national systems was 45.1% for 2008, 57.5% for 2009 and 49.2% for 2010, and on average 50.6% in the three years. (p. 95)