The Government has just issued Resolution 72 dated May 6, 2023 on the draft Resolution of the National Assembly on reducing value added tax (VAT). Accordingly, the Government agrees with the proposal of the Ministry of Finance to reduce VAT from 10% to 8% for groups of goods and services currently applying a tax rate of 10%, then submit it to the National Assembly for approval. The application period is from July 1 to December 31. Experts and businesses believe that it is necessary to extend the VAT reduction period to bring about practical effects in supporting people and businesses, promoting consumption and production. On June 1, the National Assembly discussed in the hall about continuing to reduce value added tax (VAT - VAT) by 2%. Previously, many National Assembly deputies spoke out in support of expanding the reduction of VAT for all goods and services currently subject to 10% tax to 8% to increase the effectiveness of the policy, especially in the current context of declining purchasing power.
Effective support
At the end of 2022, the VAT reduction policy under Decree 15/2022/ND-CP of the Government will expire, which is also the time when many businesses and industry associations have proposed to continue implementing tax reduction until the end of 2023. Affected by the world economy, Vietnamese businesses continue to face difficulties as export demand and domestic consumption show signs of decreasing.
Weighing the pros and cons of continuing to reduce VAT by 2% in the above context, the answer is quite clear. Reducing VAT will help both businesses and people reduce the cost of goods, reduce input pressure, stimulate effective consumption and promote production. In particular, for businesses, in 2023, when the "body" is recovering from the COVID-19 pandemic and is forecast to continue to be affected by the "headwind", supportive fiscal policies, mainly support from tax policies, are considered a medicine to help businesses increase their resistance in the coming time. Businesses that have overcome difficulties, are in better health, have stable revenue, will maintain jobs, income for workers and contribute to the budget revenue from other indirect taxes. The economy will also be healthier.
In 2022, assessing the impact of VAT reduction on budget revenue at the time of policy issuance, the Ministry of Finance estimated that the budget could reduce revenue by about VND 49,400 billion. However, the actual figure was much lower due to the Government's good and effective use of effective tax management tools; at the same time, budget revenue grew well. This shows that tax reduction is also a way to nurture revenue sources and increase budget revenue.
In response to the opinions of the National Assembly Standing Committee, in the latest submission, the Government proposed to continue implementing the policy of reducing value-added tax (VAT) by 2% as prescribed in Point a, Clause 1.1, Article 3 of Resolution No. 43/2022/QH15 dated January 11, 2022 on fiscal and monetary policies to support the Socio-Economic Recovery and Development Program (Resolution No. 43) during the period from July 1 to December 31, 2023, with a 2% reduction in VAT rate, applied to groups of goods and services currently applying a tax rate of 10% (remaining at 8%).
Thus, the 2% VAT reduction will remain the same as implemented last year and will not apply to groups of goods such as: telecommunications, information technology, finance, banking, securities, insurance, real estate business, metals, prefabricated metal products, mining products, refined petroleum, chemical products and items subject to special consumption tax.
According to the Government, implementing this plan aims to ensure the right goal of stimulating consumption, in line with the current economic context, thereby promoting production and business activities to recover and develop soon to contribute back to the state budget as well as the economy.
Previously, at the meeting to give opinions on the draft resolution on VAT reduction on May 13, due to concerns that expanding the tax reduction policy would negatively affect budget revenue while the budget revenue situation in 2023 is difficult, aggregate demand is weak, and business health is declining, the National Assembly Standing Committee directed to continue implementing the 2% VAT reduction policy as prescribed in Resolution No. 43, instead of expanding the application to all types of goods and services as proposed by the Government. Because in the difficult circumstances caused by the COVID-19 pandemic in early 2022, when issuing Resolution No. 43, the National Assembly considered and excluded a number of areas that were not really necessary from the scope of VAT reduction. Moreover, at present, it is expected that state budget revenue in 2023 will still face many difficulties.
Updated data shows that GDP growth in the first quarter increased by 3.32%, much lower than the target and scenario (5.6%). The main contributors to growth were the service sector and agriculture, while industry, which is the driving force for growth, declined. Along with that, many businesses laid off or furloughed a large number of workers due to reduced or no orders, making workers' lives even more difficult.
In the context of forecasting complicated developments in the world and in the country, increasing difficulties for the economy and businesses, creating great pressure on macroeconomic stability, recovery and development of many industries and fields, the Government affirmed that continuing to reduce VAT by 2% in addition to the solutions that have been and are being implemented in 2023 is necessary, suitable to the current economic context to promptly support people and businesses; thereby, promoting production and business activities to recover and develop soon to contribute back to the state budget as well as the economy.
In terms of state budget revenue in 2023 alone, it is expected to decrease by VND 20,000 billion because VAT payable for December 2023 will be paid in January 2024.
Along with that, the National Assembly Standing Committee also requested that the budget revenue must not be reduced according to the approved estimate and the budget deficit of 2023 must not be increased.
To overcome and compensate for short-term impacts on state budget revenue as well as ensure proactive management of state budget estimates, the Government will direct the Ministry of Finance to coordinate with relevant ministries, branches and localities to focus on directing the effective implementation and deployment of tax laws.
At the same time, continue to reform and modernize the tax system, simplify tax administrative procedures. Along with that, resolutely manage state budget revenue, focus on timely and effective implementation of groups of solutions for revenue management, combating revenue loss, transfer pricing, and tax evasion.
Consider expanding the scope of VAT reduction to all groups of goods
Reducing VAT is one of the practical and effective fiscal policies in supporting businesses to recover and maintain growth.
According to the audit report of the Finance and Budget Committee, some delegates suggested considering expanding the scope of subjects eligible for VAT reduction to all groups of goods currently subject to a 10% tax rate because all production and business sectors are currently facing difficulties. Some also suggested considering raising the VAT reduction rate to 4% to “ease” people’s burdens and nurture revenue sources.
The Finance and Budget Committee reviewed the continued implementation of the 2% VAT reduction policy according to Resolution 43/2022/QH15. Standing Committee member Le Thanh Van said that tax reduction leading to a reduction in product prices will increase sales, so even though VAT revenue decreases, revenue from corporate income tax, import and export, personal income tax, fees and charges, etc. may increase. Along with that, inspection and supervision to prevent tax losses will be strengthened. These items will ensure budget balance.
According to Prof. Dr. Tran Hoang Ngan - National Assembly Delegate of Ho Chi Minh City, in the context of economic difficulties and declining growth, we need an expansionary fiscal policy. Industries and fields are all connected. Therefore, choosing something that is easy to manage and easy to do will be effective. It is necessary to reduce VAT for the masses, not to limit it to specific areas, and it is even possible to reduce this tax more deeply. Mr. Ngan analyzed that in the past three years, businesses have faced consecutive difficulties. Now, policies need to be calm to "fundamentally" solve the challenges and solve the problem comprehensively. Therefore, "it cannot be solved by firefighting, because this fire will spread to another fire", Mr. Ngan likened.
Stimulate the ripple effect
From the implementation perspective, businesses assess that, among fiscal policies, VAT reduction creates a direct impact on the economy, has a spillover effect and is easy to implement. When the policy takes effect, businesses and people benefit immediately from the tax reduction. Businesses reduce implementation costs, do not need to go through the stages of reviewing documents or strict conditions. Not only retail businesses, production and trade service businesses benefit directly, the tax reduction also has a spillover effect on businesses in related fields that calculate VAT according to the deduction method and provide goods and services that are subject to 10% VAT if the goods and services are not on the list of regulated goods and services. Moreover, when the economy improves, people with savings will increase consumption and investment, opening up development opportunities for businesses in many other fields that may not or benefit less from the VAT reduction.
During the implementation process at enterprises, there were initially some difficulties in declaring, calculating taxes or problems in managing and monitoring tax payments due to confusion in determining products and goods eligible for tax reduction. These shortcomings were later resolved, and the implementation of the VAT reduction policy was more stable. This is a premise and good experience for faster and more effective implementation of tax reduction policies in enterprises, avoiding unwanted impacts that cause loss of time and effort due to tax-related administrative procedures.
The issue that businesses want, based on careful calculations, is that the authorities have a plan to reduce taxes synchronously in industries and fields related to the supply chain to facilitate businesses' implementation. Because in the chain, there are items that are not subject to tax reduction but use input goods that are subject to tax reduction, causing businesses selling goods to receive tax reduction but businesses buying goods to have tax increase... In addition, in the case of only applying tax reduction to some goods and services, there should be specific instructions and classifications for businesses to easily implement, not causing confusion because the time to implement tax reduction is not too long, lasting in the second half of this year.
Khanh An
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