Vietnam Gov’t agrees to cut VAT tax to 8% until year end
Vietnam Gov’t agrees to cut VAT tax to 8% until year end
This would reduce budget revenues by VND5.8 trillion (US$246.7 million) per month and by VND35 trillion (US$1.48 billion) over the last six months of the year.
The government has approved a plan to reduce the value-added tax (VAT) from the current 10% to 8% by the end of the year.
Customers buy goods at a supermarket in Hanoi. Photo: Khanh Huy/The Hanoi Times |
The Government Office released Deputy Prime Minister Le Minh Khai's directive on the matter, instructing the Ministry of Finance (MoF) to soon submit the proposal to the National Assembly to review and issue a resolution on a new VAT rate under simplified procedures.
The process should be reported back to the government before April 25, the directive said.
The MoF previously proposed a reduction of VAT by 2 percentage points for goods and services with a tax rate of 10%.
In 2022, the government implemented a VAT reduction of 8% to help businesses recover from the effects of the Covid-19 pandemic. The Ministry of Finance believes that the continuation of this policy in the current year is necessary to stimulate consumption demand, promote production and business recovery, and contribute to the budget.
Due to the complicated global situation since October 2022, Vietnam's economy has been under pressure. In the first quarter of 2023, GDP grew only 3.32%, which was comparable to the same period in 2020 when the pandemic first broke out.
However, there are challenges that many companies are facing, including a lower number of start-ups and re-entries (57,000) compared to the number of exits (62,000). The difficult situation has forced many companies to downsize their operations and workforce.
Under these circumstances, the MoF's proposal to reduce VAT by 2% on goods and services to 8% from a tax rate of 10% is estimated to reduce monthly budget revenues by VND5.8 trillion (US$246.7 million) and VND35 trillion (US$1.48 billion) in the last six months of the year.
In addition, the ministry also proposed to lower 35 fees in the second half of the year, equivalent to a reduction of VND700 billion ($29.7 million) in revenue, to support businesses and individuals.
In 2022, the total support package for VAT reduction amounted to about VND44 trillion ($1.87 billion), with the measure successfully stimulating consumption demand while promoting production and business development.
However, there were issues during the implementation process as taxpayers and tax authorities struggled to identify goods and services that were not eligible for tax reduction due to complex regulations. As a result, compliance costs for taxpayers and collection costs for tax authorities increased since the identification of exempt goods and services required coordination among various ministries and branches.
Therefore, in 2023, the MoF proposes to reduce the VAT rate by 2% for all goods and services subject to the 10% tax rate.
In order to ensure that the proposed plan effectively stimulates consumption demand and promotes production and business activities in line with the current economic environment, the MoF has set an implementation period from the date of policy issuance until December 31, 2023.
To mitigate the impact on government revenue in the short term and maintain sound management of government budget estimates, the MoF said it will work closely with relevant agencies and localities to ensure the effective implementation of tax laws. This includes continued efforts to reform and modernize the tax system, simplify tax administration procedures, and actively manage state budget revenues. Emphasis will be placed on the timely and effective implementation of revenue management measures and the fight against revenue leakage, transfer pricing, and tax evasion.
