Many businesses, associations and experts are concerned that if some regulations in the draft amendment to the Law on Value Added Tax are kept as they are now, when the law is passed, it will increase costs, negatively impact export competitiveness and affect Vietnam's entire supply chain.
The entire supply chain faces reduced competitiveness.
At the recent Conference of the Prime Minister meeting with the foreign investment (FDI) business community and the Vietnam Business Forum (VBF), Mr. Hong Sun, Chairman of the Korean Business Association in Vietnam (KoCham) said that in December 2023, the National Assembly Standing Committee included the content of amending the current Law on Value Added Tax in the plan to promulgate the law in 2024 and in the draft amendment, Point a, Clause 1, Article 9 was added: "Abolish the application of 0% value added tax rate for consumer services in duty-free zones".
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| Experts recommend assessing the impact and referring to international experience and practices in amending the Law on Value Added Tax. |
According to the Chairman of KoCham, the services consumed in the duty-free zone are production activities serving the export of export processing enterprises. Therefore, imposing value-added tax on those services will certainly hinder the production, export and investment activities of these enterprises, and Vietnamese enterprises providing related services to export processing enterprises will also be affected.
Through the practice of supporting businesses to comply with tax and customs regulations, Deloitte Vietnam experts also found that current regulations have some common problems that need to be resolved, especially the value-added tax policy for non-tariff zones, export processing enterprises and export activities. Even in the draft Law on Value-Added Tax (amended) discussed at the workshop on March 15, 2024 of the National Assembly's Finance and Budget Committee and the Ministry of Finance, although many amendments have been proposed that are close to practical problems, there are still many issues that businesses are concerned about if the current amendment proposals remain unchanged and are approved and implemented by the National Assembly in the near future.
| The draft amendment to the Law on Value Added Tax is receiving a lot of attention and comments from the business community, associations, organizations, business households, etc. from different perspectives. According to the law and ordinance making program in 2024, the draft Law will be submitted to the National Assembly for consideration and comments at the 7th Session; and considered and approved at the 8th Session of the 15th National Assembly. |
A specific example is the proposal to narrow the scope of application of the 0% VAT rate to export services. Accordingly, the draft has limited the scope and listed only a number of types of export services (enjoying 0% VAT) as services provided to foreign organizations and individuals, including: Transportation vehicle rental services used outside the territory of Vietnam; International transportation services; Aviation and maritime services directly provided for international transportation.
Mr. Bui Ngoc Tuan, Deputy General Director of Deloitte Vietnam, said that the above limitation of scope also changes the policy of managing value-added tax and customs for domestic enterprises providing services to foreign countries (including cases of services associated with exported goods) and providing to export processing enterprises in non-tariff zones. Accordingly, the value-added tax rate for these cases increases from 0% for export services to 5%/10% as for normal business services.
“Domestic enterprises incur additional value-added tax payable for providing services abroad and/or to export processing enterprises. At the same time, export processing enterprises must record the input value-added tax incurred in the period's expenses, increasing the cost of the enterprise's products and reducing the competitiveness of the entire supply chain of Vietnam because the final products of export processing enterprises are often exported abroad,” said Mr. Bui Ngoc Tuan.
Resolving open issues
In addition, according to this expert, with the practice of applying a 0% VAT rate to exported services for many years, the change may also affect the attractiveness of the investment environment, and directly impact the costs and operations of foreign-invested enterprises at present, especially in economic conditions that are predicted to have many difficulties as at present. Therefore, the National Assembly and the Ministry of Finance need to assess the overall impact and refer to international experience and practices before deciding on this issue.
“The current problems need to be carefully considered to adjust appropriate regulations in the draft Law on Value Added Tax (amended), ensuring harmony from both the perspective of tax management and business costs of enterprises,” Mr. Bui Ngoc Tuan proposed.
This person also said that at the recent consultation workshop, Deloitte recommended that the economic impact of narrowing the scope of services identified as export services should be carefully assessed to ensure that the value-added tax policy is comprehensively revised without disrupting the investment and business situation of enterprises, contributing to socio-economic stability.
Carefully assessing the impact is also an issue that AmCham Hanoi Chairman Joseph Uddo emphasized that the amendments to the Law on Value Added Tax, the Law on Special Consumption Tax and the Law on Corporate Income Tax in the 2024-2025 agenda could significantly affect business growth and investment.
“We recommend that a thorough assessment of the socio-economic impact of these changes be conducted before implementing them in such a short period of time,” said Joseph Uddo.
Meanwhile, referring more specifically to the above-mentioned problem, Mr. Hong Sun warned that if the draft remains unchanged, "this burden will reduce the international competitiveness of export processing enterprises and reduce production, investment and export activities". Directly proposing this content, the Chairman of KoCham said that it is necessary to regulate in the direction of maintaining "Applying a 0% value-added tax rate to services consumed in duty-free zones". In addition, regarding the issue of implementation, he also requested relevant agencies to ensure compliance with the value-added tax refund deadline so that enterprises can proactively develop their business plans.
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