Recently, during a meeting between the Government’s Standing Committee and representatives of Vietnamese entrepreneurs, the Deputy Minister of Finance announced that the Ministry of Finance is currently reviewing and reporting to the Government the plan to continue reducing VAT in 2024 following the trend set in 2023.
Given the economic challenges in 2023, where businesses and citizens limited spending, leading to slow economic growth and negative consequences such as layoffs, restricted expansions, reduced borrowing, Vietnam is facing the risk of deflation if support policies for economic development are not extended.
Financial data revealed that contributions from three economic sectors, namely state-owned enterprises, foreign direct investment, and private enterprises, account for 52-55% of the budget revenue. Considering total revenue including oil, this percentage ranges from 43-46%.
During the 2020-2023 period, amid the complex developments of the COVID-19 pandemic affecting people’s lives and daily business operations, the Ministry of Finance proactively proposed and implemented financial policies regarding extensions, exemptions, and reductions in taxes, fees, land rent, corporate income tax, personal income tax, special consumption tax, import tax, environmental protection tax, etc., to support businesses and citizens.
The 2% VAT reduction applied in recent years was part of the expanded financial policy. When the economy showed signs of slowing down due to various reasons, the Vietnamese government could implement financial policies like tax reduction and increased public investment to stimulate economic demand.
According to Western economists’ studies, when employing an expanded financial policy, the government of a nation is willing to accept a budget deficit for that year to shift the economy from high unemployment to near full employment.
In 2020, the total scale of support measures was 129,000 billion VND; in 2021, it was 145,000 billion VND; in 2022, it was 233,000 billion VND. In 2023, it is expected to be 196,000 billion VND, including an extension of 21,000 billion VND and a reduction of approximately 75,000 billion VND, including land rent recently approved by the Prime Minister.
Vietnam is considering continuing the VAT reduction in 2024. With only 2 months left until 2024, the Ministry of Finance is actively reviewing and assessing the impact of continuing the VAT reduction in 2024 on key factors such as its effect on the budget revenue and its impact on businesses, as well as the spending and consumption patterns of citizens.
Based on this evaluation, the Ministry of Finance will have grounds to propose the continuation of the VAT reduction next year, as applied in 2023. In addition to VAT, the Ministry of Finance will also consider reducing import and export tax rates, supporting domestic production and business, reducing some fees and charges, and encouraging the use of online public services.