state enterprises sector caused by monetary restraint to tackle inflation. The cessation of the subsidiary import of intermediate goods from the CMEA countries also worsened the financial condition of state enterprises.

Since 1990, the Vietnamese government has intentionally reduced its dependence on transfer and has made efforts to establish a uniform tax system suitable for the market economy. The basic framework of the Vietnamese tax system was established when a major tax reform took place in 1990 and 1991. The outline of the Vietnamese tax system is shown in Table 2-V-2.

It was expected the tax reform would have two kinds of positive effects on the economy: the establishment of a stable source of revenue and the encouragement of state enterprises reform. The abolition of transfers and the introduction of a uniform tax would increase the autonomy of state enterprises, and in addition the removal of the differences in tax treatment between state and private sector would encourage private sector development.

However, despite these efforts, because of the defectiveness of the tax administration, in reality the reform remains imperfect. Ad hoc tax concession is frequent; consequently, the actual tax rate differs from one company to another according to their bargaining power. Tax collection is poor: collection from the private sector is quite weak. Tax revenue from the private sector accounts only for about 14 percent while the share of the private sector in GDP is estimated at around two-thirds. $ ^{1} $ As the private sector is now expected to play an important role in the Vietnamese economy, it is of great importance to improve tax collection from the private sector.

Besides transfers from state enterprises and tax revenue, revenue from crude oil production is increasing, currently accounting for about 20 percent of total revenue. $ ^{2} $

## 2 -1-2 Expenditure

## (1) Current Expenditure

Before 1989, three kinds of subsidies existed: export subsidies, food procurement, and production subsidies to state enterprises. All of these subsidies were abolished in 1989 with the exchange rate unification, wage reform, and price liberalization respectively.

The abolition of production subsidies to state enterprises was designed with two major objectives: reduction of government expenditures, and the separation of national finance and the finance of state enterprises. The latter serves to strengthen the independence of state enterprises. However, the reduction of government expenditure has shown little progress, and the effect of the separation of the national finance and the finance of state enterprises has been offset by subsidiary loans provided for state enterprises through the Bank for Investment and Development. In other words, the abolition of the subsidy to state enterprises was nothing more than the recourse of subsidies from the direct ones through the state budget to the indirect ones through credit system.

## (2) Capital Expenditure

Capital expenditure has been suppressed in the government's effort to reduce the fiscal deficit. In addition, the cessation of assistance from the former USSR in 1991 strongly hit capital expenditure (see Chart 2-V-2). Nevertheless, with poor infrastructure, the need for public capital formation is extremely high. Although the restraint of government capital