Lawmakers split over VAT on fertilisers and animal feed

Lawmakers split over VAT on fertilisers and animal feed

Lawmakers are weighing significant changes to the VAT regime, with fertiliser taxation emerging as one of the most contentious issues in the latest draft amendments.

During a National Assembly (NA) session on December 9, legislators debated the government’s proposal to allow full deduction of input VAT for goods and services not subject to output VAT. The measure is intended to ease persistent cost burdens on sectors such as animal feed and other VAT-exempt products, where non-deductible input taxes have long inflated production expenses and weakened domestic competitiveness.

However, when comparing this proposal with the case of fertilisers – previously suggested being taxed at a 5 per cent VAT rate – NA deputy Tran Van Lam of Bac Ninh noted a policy inconsistency. He stressed that both animal feed and fertilisers are essential agricultural inputs, yet they are subject to different VAT treatments, creating disparities in how the sector is taxed.

“I propose that the NA and the government thoroughly address this inconsistency while amending the VAT policy. Fertilisers should be returned to the group not subject to VAT, which would end ongoing debates, as fertiliser producers would still enjoy input VAT deductions even if fertilisers themselves are not subject to VAT, similar to the proposed treatment for animal feed,” Lam said.

Sharing the view that VAT ultimately burdens consumers, particularly for agricultural products, NA deputy Ta Van Ha of Danang said the claim that higher taxes could reduce prices is unconvincing. He explained that any tax increase would directly affect agriculture and, in turn, the livelihoods of 100 million people.

“The state has invested billions of dollars to support agriculture, farmers and rural areas. Therefore, having addressed animal-feed issues, we should also consider fertilisers,” he said.

However, deputy Trinh Xuan An of Dong Nai argued that products related to animal husbandry and processing are created by farmers, whereas fertilisers are produced by businesses. In practice, fertiliser manufacturers and associations have repeatedly proposed that fertilisers should be subject to a 5 per cent VAT rate.

He recalled that fertilisers were taxed at 5 per cent in 2008, but were removed from the taxable group in 2016 to allow input VAT deductions. However, because deductions did not materialise in practice, domestic fertiliser companies suffered significant disadvantages compared to importers, who could claim refunds. As a result, domestic producers were forced to add this cost to retail prices.

“This impacts people’s livelihoods or household budgets. Policies must be carefully calculated to ensure benefits for enterprises, citizens and the state. If fertilisers remain outside the VAT-taxable group, input VAT must be deductible to support domestic fertiliser production; otherwise, they face significant disadvantages,” said An, adding that if fertilisers are moved back into the taxable group, then deductions must apply to ensure fairness.

Minister of Finance Nguyen Van Thang

Minister of Finance Nguyen Van Thang explained that the VAT amendments aim to ensure consistent application of VAT for animal feed. The goal is to level the playing field with imported products that are not taxed, while domestic products currently face a 5 per cent VAT burden. The tax imposition has increased production costs and prices for domestic animal feed, hurting farmers and weakening competitiveness against imported feed.

“Therefore, the amendment seeks to remove obstacles for agricultural production, especially as the sector continues to be heavily affected by natural disasters and prolonged flooding,” the minister said. “Tax on fertilisers would be acknowledged for further thinkings, and findings would be submitted to the competent authorities.”

VIR