The National Assembly (NA) will consider continuing the two-percentage-point reduction in value-added tax (VAT) into the second half of this year to support businesses and households. The business community and experts have proposed applying the VAT reduction to all goods and services due to weak domestic consumption and the complexity of determining which goods are subject to the normal 10% VAT and which are eligible for the 8% rate.

Policy target achieved Since March 2024, New World Travel Company has signed numerous tour contracts for June and July, as many customers have booked early to enjoy favorable prices. Dang Thanh Tung, director of New World Travel, noted that bookings for large groups by businesses and schools often focus on every detail, including taxes and fees. They pay close attention to whether the VAT is 8% or 10% when booking tours. Tung believes that the VAT reduction by two percentage points has significantly boosted the recent demand for tourism. According to the NA, the lowering of VAT from 10% to 8% was implemented in all of 2022, the second half of 2023, and the first half of 2024. In a report to the NA, the Government affirmed that this policy had effectively helped reduce the prices of goods and services through businesses engaged in producing goods and providing services eligible for the lower VAT rate. Consequently, the policy’s target of boosting consumption and promoting the growth of production and business has been achieved. Specifically, the VAT reduction provided support worth VND11,488 billion for businesses and individuals in the first three months of 2024, VND23,400 billion for the second half of 2023, and VND51,400 billion for all of 2022. According to data from the General Statistics Office, total retail revenue from goods and services in Q1/2024 increased by 8.2% compared to the same period last year, by 7.5% year-on-year in Q3/2023, by 9.3% year-on-year in Q4/2023, by 9.6% year-on-year for all of 2023, and by 19.8% year-on-year in 2022. Based on the positive results of the 8% VAT and considering that businesses still face multiple challenges with growth forecasts lower than the targets set by the NA, the Government has proposed extending the VAT reduction into the second half of this year. The proposal includes maintaining the 8% VAT on goods and services currently subject to the 10% rate, with exceptions. The sectors on the exclusion list are telecoms, information technology, finance, banking, securities, insurance, real estate, production of metals and metal products, mining (excluding coal), production of cokes, refined petroleum products, chemicals, and products subject to special consumption tax. According to the Government’s calculations, the proposed VAT reduction would decrease tax revenue by approximately VND24,000 billion. Combined with the tax revenue reduction of VND23,488 billion in the first half of the year, the total revenue reduction in all of 2024 would be around VND47,488 billion. This fall is not a major concern. As of May 15, 2024, tax collections for the year had already reached 47.8% of the full-year plan, up by 16.3% against the same period last year. Additionally, there was an unexpected increase in some collections, such as the State Bank of Vietnam paying a collection expenditure balance of VND31,840 billion to the State budget, which is 175% of the projected amount. Uncertainty about tax rate classification The Vietnam Chamber of Commerce and Industry (VCCI) has acknowledged that the VAT reduction from 10% to 8% has had many positive impacts on the economy. Given the challenging economic situation, the VCCI believes that continuing the VAT reduction policy from July to the end of 2024 is essential. However, the VCCI has pointed out that businesses are facing significant issues with the implementation of this policy, primarily due to difficulties in determining which goods and services are subject to the 10% VAT and which are eligible for the 8% rate. The Government has issued Decree 15/2022/ND-CP and Decree 44/2023/ND-CP guiding the execution of the 8% VAT. These decrees, however, were based on Vietnam’s economic codes, which are mainly used for statistical purposes and are rarely used as a basis for determining business interests and obligations. As a result, specifying groups of goods and services has proven to be challenging, especially in cases where there is no special law. For example, determining whether telecoms and IT goods qualify for the 8% VAT rate is difficult due to the lack of clear definitions in other legal documents. Other goods and services also face classification issues, such as manufacturing products from precast metals and chemical production. Many businesses have struggled to determine whether their goods or services get a 10% or 8% VAT, despite referring to the appendices of Decree 15 and Decree 44. Queries to the tax authorities, customs, or the Ministry of Finance often result in general replies, such as, “The company is requested to refer to the Prime Minister’s Decision 43/2018/QD-TTg and to compare the codes of the goods or services the company provides with the codes of goods and services in appendices I, II, and III of Decree 44/2023/ND-CP to duly comply with the regulation.” The VCCI argues that this difficulty in determining a correct VAT rate has led to increased social costs and risks for business operations. Many companies have had to hire additional accountants to adjust invoices and records to the new tax rate. Some businesses have finalized negotiations about the quantity, quality, and price of goods with customers but cannot sign sales contracts due to disagreements over an 8% or 10% VAT. There have also been payment disputes in the construction sector due to differing views on tax rates. “For the above reasons, the tax policy drafting agency should consider reducing the VAT from 10% to 8% for all goods and services,” the VCCI proposed. The Vietnam Institute for Economic and Policy Research (VEPR) said that the VAT reduction should continue in 2024. The VEPR suggested that competent authorities consider extending the VAT cut to more beneficiaries because consumption remains weak and has not returned to pre-Covid-19 levels. The VEPR pointed out that while total retail revenue from goods and services increased by 9.6% in 2023 and 9.04% in April 2024, these growth rates do not accurately reflect domestic consumption, which is still quite low. Total retail revenue from goods and services in Q1/2024 rose by 8.2% but fell significantly compared to Q4/2023, even though the Lunar New Year festival occurred during this period. Consumption, a major growth driver, contributed 7.1% to growth before the pandemic but this contribution decreased to a mere 4.9% from 2023 to Q1/2024. Last weekend, the NA agreed to include the VAT reduction on the agenda for its ongoing seventh sitting. This policy is expected to be considered and approved during the second session of the sitting, scheduled from June 17 to 29.