NA's Finance and Budget Committee supports slashing VAT

The ministry suggested that the policy, expected to boost the economy, should be applied until December 31.

The National Assembly's Finance and Budget Committee agreed with the Government's proposal on reducing further value-added tax (VAT) to continue supporting production and business sectors and people.

Legislators on May 24 listened to the Ministry of Finance's proposal and the NA’s Finance-Budget Committee's verification report on the further application of the 2 per cent reduction in the value added tax (VAT) under a resolution dated January 11, 2022, as part of the ongoing fifth session of the 15th National Assembly.

Minister of Finance Hồ Đức Phớc noted that last year, the Government submitted Resolution 43/2022/QH15 on fiscal and monetary policies in support of the socio-economic recovery and development programme for approval.

The resolution prescribed the VAT reduction for most items from 10 per cent to 8 per cent, he continued, noting that the document helped businesses and people with about VNĐ44.5 trillion (US$1.8 billion) last year, contributing to spurring production and business, generating jobs for labourers, stimulating consumption, and raising State budget collection.

Given the complexities in the domestic and global situation forecast, which would challenge the domestic economy and enterprises, the Government proposed the further application of the 2 per cent VAT reduction from July 1, 2023 to the end of this year, the minister said.

The VAT reduction is not for some of the groups of goods and services such as telecommunications, information technology, financial activities, banking, securities, insurance, real estate business, metals, prefabricated metal products, mining products, coke, refined petroleum, chemical products, and goods and services that are imposed excise tax.

According to Chairman of the NA’s Finance-Budget Committee Lê Quang Mạnh, most of the members of the committee approved the Government’s proposal to further support people and businesses in recovery and development.

The committee, however, suggested the Government evaluate the impact of the reduction more precisely to meet set socio-economic targets, he said, adding that some proposed raising the rate to 4 per cent from the present 2 per cent.

The Government's assessment of the implementation of the VAT reduction policy in 2022 as a basis for proposing the VAT reduction policy this year may not match socio-economic reality.

The Government believes that the policy on cutting VAT under Resolution No. 43/2022/QH15 has indirectly stimulated the domestic consumption demand. The total retail sales of consumer goods and services in 2022 increased by 19.8 per cent compared to the previous year, contributing to macroeconomic stability in 2022.

However, according to some committee members, the purchasing power and consumption this year are different from the situation in 2022.

In 2022, people's purchasing power and consumption recorded high growth after being suppressed by the COVID-19 pandemic. At present, both people and businesses are facing difficulties.

The VAT reduction policy in the second half of 2023 could hardly promote the efficiency of stimulating consumption as in 2022.

So, most of the lawmakers also agreed with the duration from July 1 to the end of this year, while some others held that it should be extended to ensure the stability and efficiency of the policy, Mạnh said.

They recommended extending the policy application period compared to the Government's proposal to ensure stability and proactiveness in implementation and enough time to promote the efficiency of the policy.

They also suggested that stimulus measures this year should focus on removing bottlenecks to increase disbursement and promote the efficiency of public investment in the economic recovery package rather than continuing policies that reduce budget revenue.

On the sidelines of the fifth session, NA delegate Lê Thanh Vân of Cà Mau Province said instead of 2 per cent VAT reduction, the reduction should be 3-5 per cent. It will give more support to people and businesses.

The reduction of VAT will help lower the prices of goods, promoting sales. Therefore, if an enterprise's sales increase, the corporate income tax also increases, thereby also collecting more taxes for the State budget.

NA delegate Trần Hoàng Ngân of HCM City also said that initially, it is to reduce VAT by 2 per cent. In the future, it is necessary to further reduce this tax rate to stimulate domestic consumption.

Earlier, many businesses and associations told Vietnamnet that it is necessary to consider the application period.

Nguyễn Chánh Phương, vice chairman of the Handicraft and Wood Industry Association of HCM City (HAWA), said the VAT reduction is very good, but it needs to be done sooner.

According to him, associations and large enterprises in October and November 2022 proposed maintaining this VAT reduction policy.

They missed out on stimulating consumption at two times of high goods and service demand, the 2023 Lunar New Year and the long holiday on April 30 and May 1, Phương said.

Now, if the proposal on VAT reduction is approved, he added that the reasonable cycle of applying this policy would be from September 1, 2023, to March 1, 2024, covering the 2024 Lunar New Year consumption season.

The tax adjustment must follow a semi-annual cycle for the financial year under existing regulations. Still, he said a reasonable VAT reduction cycle for business activities of enterprises should be considered to match the period that people focus on shopping activities.

Chairman of the HCM City Business Association, Nguyễn Ngọc Hòa, also said that reducing VAT from 10 to 8 per cent should last until the 2024 Lunar New Year when domestic demand will increase.

In addition, the State management agencies also need to consider exempting or reducing other taxes during this period, such as the reduction of the registration tax. The economy is difficult, but there are still groups of customers eligible to buy houses and cars, so he said it needs to stimulate them in spending.

Nguyễn Văn Khánh, vice chairman of the HCM City Leather and Footwear Association, said this policy would partly stimulate consumption, but the application period needs longer. It will be short if the policy is for the second half of this year.