Continuing to allow some goods to enjoy a VAT rate of 8% instead of 10% until the middle of next year will reduce the budget by 25,000 billion VND, according to the Government.
On the afternoon of November 20, the National Assembly will discuss the extension of the 2% VAT reduction until June 2024, after Finance Minister Ho Duc Phoc, authorized by the Government, read the proposal. According to the draft resolution submitted by the Government, this tax rate will not apply to sectors and services such as telecommunications, banking, real estate, securities, etc., and products subject to special consumption tax.
The government calculates that extending the 2% VAT reduction until mid-2024 will reduce the budget revenue by about VND4,175 billion per month. Thus, the budget will reduce by VND25,000 billion (about USD1 billion) when applied for 6 months.
However, the important feature of VAT is that the tax burden is shared between businesses and consumers, so when reduced, both parties will benefit. Specifically, people will benefit directly by contributing to lower selling prices, thereby directly reducing spending costs. For businesses, extending the 2% VAT reduction period also helps them reduce production costs, prices and increase competitiveness and sales.
Examining the proposal, the Finance and Budget Committee said that the majority of opinions agreed to extend the implementation of this policy so that the economy can recover faster in difficult circumstances .
However, some opinions disagree because they believe that this is only a temporary measure. The evidence is that reducing VAT in the last months of 2023 does not show a major impact on stimulating consumption and economic growth as the Government has assessed. According to statistics from the statistics agency, total retail sales of goods and consumer service revenue in the third quarter increased by only 7.3%, lower than the increase in previous quarters.
In addition, there are also comments assessing the impact of reducing revenue by about 25,000 billion VND, the budget cannot predict the level, and the industry will change positively when continuing to reduce this tax.
Others want to reduce VAT to 8% on all goods and services currently subject to a 10% tax rate.
According to the draft resolution, the Government proposes that after June 30, 2024 - the date when the tax reduction policy expires, between two sessions, the National Assembly Standing Committee will decide whether to continue reducing VAT or not based on the Government's proposal. This, according to the Government's explanation, is to ensure flexibility in fiscal policy management. However, when examining, the Finance and Budget Committee disagreed, because according to the 2013 Constitution, the National Assembly is the agency that regulates, amends or abolishes taxes. Therefore, the decision on VAT reduction policy is under the authority of the National Assembly, according to the examining agency.
Thus, in case by mid-2024, the Government clearly sees the need to continue reducing VAT for the second half of the year, it will follow legal document procedures and submit it to the National Assembly for consideration at the 7th session.
The Finance and Budget Committee also commented that the policy promulgation every 6 months shows a lack of stability and predictability. Therefore, the review agency suggested that the Government have solutions to improve the quality of policy making and perfect the law.
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