On June 30, 2023, the Government issued Decree No. 44/2023/NĐ-CP, which regulates the policy of reducing value-added tax (VAT) in accordance with Resolution No. 101/2023/QH15 dated June 24, 2023, of the National Assembly. Accordingly, from July 1, 2023, until the end of the year, the VAT for certain groups of goods and services will be reduced to 8% instead of 10%.
During the previous discussions, there were many suggestions to expand the scope of the 2% VAT reduction to optimize it for all groups of goods and services subject to the 10% tax rate, rather than limiting it to certain groups. Applying a uniform reduction in VAT for all groups of goods and services would alleviate the burden on businesses in administrative procedures related to accounting and auditing, which was a concern raised by many businesses during the 2% VAT reduction in 2022.
Additionally, some other representatives proposed increasing the 2% reduction to 3-5% and extending the implementation period of this policy until mid-2024 or the end of 2024 to support the business sector. However, the Standing Committee of the National Assembly believes that further expanding the scope of sectors and goods eligible for VAT reduction or extending the duration of the reduction would have serious implications for the state budget revenue.
Currently, Vietnam is facing the risks of inflation reduction, loss of orders, and a slowdown in economic operations. Therefore, the VAT reduction policy from now until the end of 2023 has been carefully calculated to temporarily mitigate the immediate risks. However, caution is needed to prevent the potential risks of excessive reduction or prolonged reduction leading to high inflation.
This is an effective fiscal policy that goes hand in hand with the monetary policies Vietnam plans to implement in the near future, such as further reducing the regulatory interest rate to simplify access to capital for businesses.
It is estimated that Vietnam’s budget in 2023 will face a deficit of about 24,000 billion VND when reducing the VAT to 8% from July to the end of 2023.
Groups of products and services not eligible for VAT reduction
Article 1, Clause 1 of Decree 44 stipulates that all groups of goods and services currently subject to 10% VAT will be reduced by 2% to 8%, except for the following groups of goods and services:
a) Telecommunications, financial activities, banking, securities, insurance, real estate business, metal and pre-cast metal products, mining products (excluding coal mining), coke, refined petroleum products, and chemical products. Details are provided in Appendix I issued with this Decree.
b) Goods and services subject to special consumption tax. Details are provided in Appendix II issued with this Decree.
c) Information technology according to the laws on information technology. Details are provided in Appendix III issued with this Decree.