Recently, the Government of Vietnam has agreed the proposal to reduce VAT in Vietnam from 10% to 8% for the rest of 2023. It is expected that the Ministry of Finance will submit a formal proposal to the National Assembly to issue an official Resolution for VAT reduction implemented according to simplified procedures.
On April 17, 2023, the Government Office of Vietnam sent a document to convey the opinion of Deputy Prime Minister Le Minh Khai on the proposal to reduce 2% of value added tax (VAT) in 2023, from 10% to 8%.
Accordingly, the Deputy Prime Minister assigned the Ministry of Finance the task of reporting to the Government and submitting it to the National Assembly and the National Assembly Standing Committee by April 25, 2023 for consideration and approval for the formulation and promulgation of a resolution of the National Assembly according to simplified procedures. Because this is an urgent solution that needs to be issued soon, it needs to be implemented drastically and quickly to stimulate economic demand and mitigate some of the difficulties of the Vietnamese economy.
Specifically, the VAT reduction policy will help businesses reduce 20% of the percentage for tax calculation when issuing value-added invoices, for goods and services currently subject to the 10% tax rate.
It is known that this is the second time Vietnam has introduced a policy to reduce VAT from 10% to 8%. In 2022, Vietnam has also applied this policy. Only 4 months have passed since the business households, sales establishments, etc. returned to the 10% VAT rate, the tax reduction proposal continued to be proposed.
Although the reduction of VAT will have a stimulating effect on economic demand, such a short-term continuous reduction is likely to have some unpredictable negative consequences for the economy. In terms of seeable damage, it can be seen that the administrative records may not match when there are continuous fluctuations in a short time.
Accounting and auditing departments of businesses will have to be busier to meet the constant changes in VAT rates.
VAT reduction in Vietnam
With this proposal, the Ministry of Finance estimates, the budget will reduce revenue by 5,800 billion VND per month and 35,000 billion VND in the last 6 months of 2023. In addition, with the orientation to stimulate economic demand, increase production and circulation to promote economic development, the Ministry of Finance also proposed many other support policies, such as lowering the collection rate of 35 fees and charges in the second half of the year (equivalent to a decrease in revenue of 700 billion VND) to support businesses and people.
Although reducing budget revenue in the short term, in the long term, these policies are expected to boost Vietnam’s GDP in 2023 – the current target of the Vietnamese Government.
In order to overcome and offset the impacts on state budget revenue as well as ensure the initiative in managing state budget estimates, the Ministry of Finance will coordinate with relevant ministries, branches and localities to direct the implementation and effective implementation of Tax Laws.
In addition to the plan to reduce tax simultaneously for all groups of products and services currently subject to the 10% tax rate, the Ministry of Finance has also offered a plan to reduce the VAT rate by 2% for groups of goods and services that currently apply the VAT rate of 10%, except for some groups of goods and services as applied in 2022 according to Resolution 43 of the National Assembly.
If applying the plan to reduce simultaneously, it will help the business sector reduce the pressure on administrative procedures when the reality in 2022 has shown that although there is Resolution 43, there is no detailed regulation regarding the group of goods and services eligible for VAT reduction. Consequently, it has created great difficulties for the business sector.
However, some experts have also pointed out that with the economic stimulus and stronger money circulation, the possibility that Vietnam’s inflation this year is difficult to control is also a notable issue. Thereby, the competent authorities need to find a suitable balance point for economic development goals as well as keep the inflation level in a stable state which has been forecasted in advance, according to the plan.