Growth potential for small goods groups

Growth potential for small goods groups

A change to VAT regulations for foreign sellers may help level the playing field for domestic producers and traders of small goods.

Many nations have eliminated VAT exemptions for low-value imported goods, Photo: Le Toan

Small-value imported goods sent via express delivery, which are no longer exempt from VAT, will contribute more to state budget revenues and open up opportunities for domestic goods.

Since February 18, imported goods via express delivery with a value of less than VND1 million ($40) have been no longer exempt from VAT. According to the former General Department of Customs, abolishing tax exemption for small-value goods will ensure fair competition in commercial activities, as well as prevent trade fraud and tax evasion on imported goods.

Cao Thu Thuy in Hanoi, a tailor and seller, said that a domestically made shirt with a low value at about $10 all pay import tax on fabric, while many cheap goods are imported from China through the border trade route to avoid taxes. Thereby, imported goods are about 10-20 per cent cheaper than the same local ones.

“Collecting full VAT and import tax on low-value goods imported via express delivery is necessary, competition between domestic goods and goods from China will be fairer in the future,” Thuy said.

Meanwhile, Le Quynh Trang in Ho Chi Minh City’s District 7 said that goods like accessories are all of small value, coming from China through e-commerce platforms such as Taobao, Lazada, and Shopee. With the new tax policy, the selling price of goods will add import tax following the customs declaration of the express delivery company and VAT, so the retail price will be adjusted to increase.

“An item that used to be offered at $2 is raising to around $2.50. This is narrowing the gap between imported and local goods, and may affect customers’ purchasing power,” Trang said.

According to the Ministry of Finance, on average, about 4-5 million small-value orders are shipped from China to Vietnam via e-commerce platforms every day. In 2023, the total value of imported goods under $40 via express delivery reached $1.1 billion. Thus, if a VAT rate of 10 per cent is applied, the state budget could increase revenue by about $108 million annually.

Economist Dinh Trong Thinh said that in 2024, about $1.3-1.9 billion of small cross-border goods were not subject to tax every month. With such a large quantity of goods, an average of about $500 million of goods have crossed the border without tax per day, a huge loss, while domestic manufacturing enterprises have to pay full taxes.

“The policy has not kept up with the growth of e-commerce, causing inequality between domestic and imported goods. The lack of taxation is reducing the competitiveness of domestic enterprises, and many enterprises are even at risk of bankruptcy,” Thinh said.

Currently, many countries in the world have abandoned the policy of exempting VAT for low-value imported goods. In recent years, the European Union, the United Kingdom, Australia, Singapore, and Thailand have abolished the exemption for small-value goods, especially in the e-commerce sector.

A representative of Inox Vietnam Production and Trading Company in Ho Chi Minh City, specialising in house equipment production, said that the tax exemption for low-value goods had strangled domestic goods.

“The exemption has made a price difference, leading to unfair competition whereby domestic goods suffer many disadvantages. Hopefully, the new tax policy will pull domestic household goods production up,” he said.

Economist Thinh added that domestic businesses should review production activities, optimise costs and reduce product prices, thereby improving their competitiveness with imported goods.

“This opens up opportunities for domestic production, but consumers are the final decision-makers. If domestic goods do not guarantee the expected quality and design, they can still order online across the border at a slightly higher price than before. The policy can avoid loss of state budget revenue, and build a fair playing field for all businesses. However, consuming goods is still up to buyers,” Thinh said.

Nguyen Anh Tuan, strategic director of J&T Express Vietnam, said that the imposition of this tax may lead to a change in the form of e-commerce.

“The current trend is direct-to-customer (D2C) goods sold directly from foreign sellers and delivered directly to buyers, because payment procedures and shipping processes have been optimised a lot,” Tuan said.

Along with tax exemption, goods have very competitive prices because of a lack of intermediaries. “In the long term, shipping costs may be reduced slightly because foreign sellers will consider changing order structure, such as ordering large quantities in the form of containers or setting up a distributor or warehouses in Vietnam. So the orders of customers will be domestic delivery, the cost will be lower than direct delivery orders internationally,” Tuan said.

How the new competitive trend on e-commerce platforms will take place, whether D2C will continue to develop or will return to the distribution model through domestic sellers, will depend on the method and tax rate that the authorities will apply, Tuan added.

VIR