National Assembly deputies have debated the possible implications of a 5% value-added tax (VAT) on fertilizers. They argue that while the tax could boost business competitiveness and profit, and increase budget revenue, it would burden farmers. Conversely, applying a 0% VAT would protect farmers from price hikes but would necessitate offsetting the budget by VND1,500 billion per year. Deputies urge the National Assembly and the Government to prioritize the interests of farmers.

On the afternoon of June 26, the National Assembly (NA) deliberated on the draft of the amended Law on Value Added Tax (VAT). A significant point of discussion was whether to impose the VAT on fertilizers and, if so, what is the right rate? In the report presented to the NA, the Government suggested reclassifying commodities used in agricultural production, including fertilizers, from VAT-exempt to 5%. This change, they argued, would prevent product cost increases and support domestic production amid import competition, thereby better supporting agriculture. Domestic fertilizer companies have provided feedback indicating that the absence of the VAT on fertilizers prevents them from deducting the VAT on materials, equipment and services. This situation drives up fertilizer prices and diminishes the competitiveness of domestic fertilizer producers compared to imports, which benefit from VAT deductions in their countries. Nevertheless, most NA deputies did not support the Government’s proposal, arguing that increasing the VAT on fertilizers would raise prices and costs for farmers. “The argument that a tax would help lower product prices is unconvincing,” said Hoang Van Cuong, former vice president of the National Economics University and a deputy of Hanoi. An assessment report from the Ministry of Finance indicated that fertilizer prices have been declining since January 2015, when they became VAT-exempt. Prices only began to rise in 2018 due to the reduced operational capacity of the Phu My Fertilizer Plant, and saw significant increases in 2022 due to the Russia-Ukraine conflict. “So, there is no point in saying that raising the tax can reduce product prices,” Cuong added. Tran Van Lam, standing member of the NA’s Finance and Budget Committee and a NA deputy of Bac Ninh Province, did not back the proposal. That the VAT would help lower product costs and prices for farmers is based on a centrally planned economy model, he said. In a market economy, prices are determined by global market movements. Regardless of domestic production costs, fertilizers must be sold at global market prices. If domestic prices are low, businesses will export to maximize profit. “Farmers always have to buy materials at world market prices plus applicable taxes. Therefore, raising the VAT would inevitably drive up input costs for agriculture,” Lam emphasized. Deputy Tran Thi Thanh Huong of An Giang Province highlighted the vulnerability of Vietnamese farmers, who mostly operate on a small scale and face unstable production conditions. “Farmers in the Mekong Delta, in particular, and across the country in general, have always been anxious about the complex impacts of climate change, which cause crop failures. They are now concerned about losses if fertilizer and agricultural material prices continue to rise,” Huong said. While it is uncertain whether applying the VAT would lead to fertilizer prices dropping, the immediate impact is clear. Deputy Hoang Van Cuong quoted a Ministry of Finance report as saying that a 5% VAT on fertilizers would generate VND5,700 billion in revenue. After deducting VND1,500 billion for local fertilizer producers, the net amount would be VND4,200 billion. “Where will the VND4,200 billion in revenue and the VND1,500 billion compensation for fertilizer businesses come from? Obviously, it comes from farmers who would have to pay more. That’s unreasonable,” Cuong asserted. Sharing the concerns of domestic fertilizer producers, Tran Van Lam, standing member of the NA’s Finance and Budget Committee, stated that state policy should support domestic businesses and products to compete fairly with foreign producers and imported fertilizers. However, he emphasized that this support should not come at the expense of tens of millions of farming households, agriculture, and the rural sector. One proposed solution is to classify fertilizers as goods subject to a zero VAT, allowing businesses to claim VAT refunds for inputs without causing material injury for farmers, although the budget would need to annually reimburse over VND1,500 billion in the previously collected VAT. Supporting the call for a zero VAT on fertilizers, Deputy To Ai Vang of Soc Trang Province said the NA and the Government should prioritize benefiting farmers. Minister of Finance Ho Duc Phoc, speaking at the end of the debate, said the ministry would review the impact of subjecting fertilizers to the VAT before presenting the issue at the NA’s next session later this year. Phoc noted that a 5% VAT would advantage domestic fertilizer businesses against imports, motivating them to innovate, reduce costs, and achieve sustainable development. For farmers, the 5% VAT would mean an additional annual cost of VND461,000, or VND38,000 per month, he said. Phoc emphasized that the rise or fall of agricultural product prices is primarily influenced by demand, supply, and crop yields, rather than the VAT alone. The VAT issue for fertilizers will be decided at the NA session in October. The Ministry of Finance should thoroughly assess the impact of the removal of VAT exemption for fertilizers and the imposition of a 5% VAT on this product. This assessment should consider the effects on the fertilizer production and trading sector, fertilizer prices, farmers’ incomes, and the competitiveness of agricultural products.