VAT to Remain at 8% until 31 December
Last week, the National Assembly of Vietnam (“NA”) voted to continue the two per cent cut in Value Added Tax (“VAT”) until the end of December.
In a vote during the fifth session of the 15th NA on 24 June, all but one of the 482 deputies voted in favour of the proposal to keep VAT at eight per cent for specific goods and services, with legislators hoping that the move will benefit both companies and consumers and, in turn, drive domestic demand and boost economic growth.
It comes after the Ministry of Finance (“MOF”) proposed the measure back in April, which the government then approved, in light of broader challenges facing sectors such as manufacturing, where foreign orders have struggled in recent months due to global economic headwinds and international inflation.
It follows a similar decision during the COVID-19 pandemic in 2022 when the government cut VAT to stimulate economic growth. That decision is estimated to have been worth almost USD 2 billion, according to Minister of Finance Ho Duc Phoc, who said that it also helped to create jobs and boost domestic consumption.
Keeping VAT at eight rather than ten per cent is designed to help businesses to keep the cost of materials down and stimulate demand. The MOF estimates that the move could cost the state budget around USD 1.5 billion. However, it is hoped that the decision will also increase the collection of other taxes, such as Personal Income Tax (“PIT”) and Corporate Income Tax (“CIT”) through greater production and consumption.
The decision applies to goods and services other than those in telecommunications, financial services, banking, securities, insurance, real estate, chemicals, and some mining activities.
To put this decision in perspective: Vietnam saw GDP growth of 3.72 per cent in the first half of 2023. However, the 4.14 per cent growth recorded in quarter two was the lowest for more than a decade, not including the COVID-19 pandemic. To make matters worse, construction and industry saw growth of less than half a per cent during this period. On a more positive note, however, services saw much healthier growth of over six per cent.
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