A new content that has been added to the agenda of the National Assembly’s sixth sitting is to review the Government’s proposal to maintain the value added tax reduction of two percentage points for the first half of 2024. This is a reasonable move given economic uncertainties and hardships facing the country.

In its proposal, coded 621/TTr-CP, the Government noted that in the aftermath of the prolonged Covid-19 pandemic, enterprises are still mired in hardships: the number of enterprises exiting the market or suspending business in the year to end-October had risen 20% year-on-year. In this year’s ten-month period, the export revenue fell 7.1% year-on-year while the import value tumbled 12.3%. The State budget revenue totaled VND1,398.7 trillion, meeting 86.3% of the year’s target. In the coming time, the global economy will continue to be overshadowed with uncertainties. The Global Economic Prospects June 2023 report of the World Bank and the OECD Economic Outlook observed that the global economy remains fragile with protracted inflation and high risks despite improvements to some extent in early 2023. In Vietnam, despite the ongoing recovery and positive outlooks are seen in certain sectors alongside good impacts from new policies, new challenges and difficulties still prevail over opportunities, evidenced by lower economic growth and high inflationary pressure. “The aggregate demand is an important engine to drive up economic growth. When exports stagger, boosting the aggregate demand in the domestic market will be an important measure to boost consumption of home-made products and underpin growth. Therefore, it is necessary to continue formulating financial policies to boost domestic consumption,” the Government reasoned in its proposal. The Government also noted that the VAT reduction of two percentage points was approved by the National Assembly for implementation in 2022, from February 1 to December 31. In 2023, seeing continued hardships facing the economy, the National Assembly approved this policy again, for implementation from July 1 to December 31. Lower VAT alongside other tax and fee incentives have enabled enterprises to cut costs and improve profitability, thus stimulating demand. Within four months this year, from July to October, the VAT reduction policy has resulted in VND15.6 trillion paid back to enterprises and the people. It has helped reduce costs of goods and services, thus underpinning business and creating more jobs, and stimulating consumption. The GDP growth rates in quarters 2 and 3 were higher than that in Quarter 1. Since July, the total value of retail goods and services has steadily increased, putting an end to the slowdown since January. In the year to the end of October, the total value of retail goods and services rose 9.4% year-on-year, and despite the rise, inflation has been put under control, with the average CPI in the ten months rising 3.2%, lower than the target of 4.5% endorsed by the National Assembly. In reviewing the efficiency of the policy, the Government said that maintaining the VAT reduction policy for the first half of 2024 to support enterprises and consumers is needed to lower costs and cut prices of goods and services, and consequently to bolster business and employment, contributing to macroeconomic stability and economic recovery in 2024. Specifically, the Government proposed reducing VAT by two points for groups of commodities and services currently subject to the 10% rate, except the following groups: telecom, information technology, finance, banking, securities and insurance services, real estate, metals, precast metal products, mineral products (except coal), coke, refined oil products, chemicals, and goods and services subject to the special consumption tax. The policy should apply from January 1 to June 30, 2024. The Government calculated that a VAT reduction of two points in the first half of 2024 will result in a loss of VND25 trillion to the State budget. However, consumers will directly benefit from the policy, as lower VAT will translate into lower selling prices of goods and services essential for the people. For enterprises, the reduction also helps them cut the input cost and thus the production cost, helping enhance their competitiveness and sales, and incentivizing business expansion. All such impacts will spur GDP and macroeconomic stability. In weighing pros and cons of maintaining the VAT reduction policy, and given the current challenges facing the economy, the choice is fairly apparent. It is almost certain that the National Assembly at the ongoing sitting will endorse this proposal by the Government in order to improve the resilience of enterprises who are facing damaging headwinds in the global economy.