MoF Proposes 2% VAT Rate Cut to National Assembly

Under the authorization of the Government, Minister of Finance Ho Duc Phoc signed and sent Report 191/TTr-CP dated May 7, 2023 to the National Assembly on a draft resolution on value-added tax (VAT) reduction. Accordingly, the Government proposed reducing VAT by 2% for all goods and services in 2023 to stimulate consumer demand and empower companies to speed up their business recovery and development to pay more tax to the State Budget in the future.

According to the report, Vietnam has adopted many support solutions for extending tax payment deadlines (for corporate income tax (CIT), personal income tax (PIT), value-added tax (VAT), special consumption tax (SCT) and land rent), tax and land rent reduction (CIT, PIT, VAT, import tax and environmental protection tax on petroleum products), and fee and charge exemption or reduction.

According to the report, the effective application of support solutions produced immediate, positive effects on businesses and people. To promptly respond to socioeconomic developments and weigh solutions in place in 2023, the Government claimed that it is necessary to continue VAT reduction as applied in 2022 to support businesses and people.

Therefore, the Government proposed slashing VAT by 2% on all goods and services subject to the current 10%. At the same time, a 20% reduction in VAT is applied to business entities (including business households and business individuals) when they issue invoices on all goods and services subject to 10% VAT.

Specifically, VAT reduction will be applied to goods and services currently levied 10% VAT until December 31, 2023. The VAT reduction for each type of goods and services is uniformly applied at the import, production, processing, business and trade stages.

Regarding the reduction rate, the Government proposed that business entities will be subject to the 8% VAT on all goods and services. Business entities (including business households and business individuals) that calculate VAT on revenue are entitled to a 20% reduction of the VAT rate when issuing invoices for goods and services eligible for value-added tax reduction as specified.

According to the Government, people will be direct beneficiaries of this policy. As the VAT is reduced on goods and services subject to the 10% VAT, it will help lower the selling prices of goods and services. Meanwhile, companies that produce and trade goods and provide services subject to 10% VAT will benefit when the policy is enacted. VAT reduction will help reduce production costs and lower product costs, a move expected to boost their resilience and business expansion.

With this proposal, the Government forecast that the budget revenue will decline VND5.8 trillion a month or VND35 trillion in the last six months of the year if the policy is applied. The VAT reduction that will result in lower prices of goods and services is expected to boost business performance for companies and employment for workers and help macroeconomic stability and economic recovery in 2023.

According to experiences in many countries, tax solutions are largely aimed to solve difficulties in cash flows for companies like extending the tax payment deadline, slashing VAT, CIT and land rent rather than exempting or cutting SCT, natural resources tax, and environmental protection tax (except for environmental protection tax for petroleum products) because these taxes are only levied on certain goods and services and are not universal to all businesses, organizations, households and individuals. Countries also often do not cut PIT but grant cash directly to people.

Hien Kien, Vietnam Business Forum