Serious problem, must be solved thoroughly!
On August 8, the Vietnam Federation of Commerce and Industry (VCCI) said that based on the opinions of businesses and associations, VCCI sent a document to the Ministry of Finance to comment on the draft Law on Value Added Tax (amended), focusing on the group of goods not subject to tax.
VCCI recommends that the Ministry of Finance consider applying VAT on imported goods, eliminating reverse protection that causes domestic manufacturing enterprises to suffer losses.
According to Article 5 of the current VAT Law, non-taxable goods include: unprocessed agricultural products, plant varieties, animal breeds, fertilizers, agricultural machinery, fishing vessels, animal feed, salt, computer software, and some other types of machinery, equipment, and supplies...
Domestic enterprises producing goods in this group currently do not have to pay VAT on output products; at the same time, they are not allowed to deduct input VAT during the production and business process. Meanwhile, similar imported products are also not subject to VAT when imported but are refunded VAT when exported out of the partner country. Thus, tax-free items and imported goods currently have lower tax costs than domestically produced goods.
According to VCCI, the regulation on non-VAT subjects is causing an undesirable impact of reverse protectionism, encouraging the import of goods instead of domestic production. Imported goods have lower tax costs than domestically produced goods, which is the undeducted VAT costs mentioned above.
Compared to import tax, when negotiating free trade agreements (FTAs), Vietnam only agreed to lower import tax on some goods with some partners according to the principle of "reciprocity", that is, other countries must also agree to open their markets to Vietnamese goods. Meanwhile, the regulation on subjects not subject to VAT makes Vietnam "give away" a huge amount of tax to all partner countries and "open up" the domestic market for many goods with advantages for imported goods.
"The current regulation on non-taxable goods is a serious problem that has existed for many years and needs to be thoroughly resolved in this amendment to the VAT Law, otherwise domestic production will continue to suffer losses, affecting the country's development goals," VCCI stated.
Remove reverse protection , the budget collects more money
VCCI proposed that the Ministry of Finance continue to review and eliminate items that are not subject to tax according to the following principles: for goods and services that Vietnam does not import from abroad (completely self-produced, supplied and consumed domestically), they will continue to be tax-free.
For goods and services that Vietnam imports from abroad for domestic consumption, they should be removed from the list of non-taxable goods and transferred to appropriate tax rates. Regarding tax rates when transferring non-taxable goods, VCCI proposed 4 options.
Option 1: Change non-taxable items to taxable items with a tax rate of 5%. This option is based on the current 5% tax rate, does not add any new tax rates, and does not complicate the tax system; however, this tax rate has an uneven impact on items and businesses.
Option 2: Convert non-taxable items to taxable items with tax rates of 5% or 0%. Accordingly, items with a non-deductible VAT rate of over 5% will be converted to 5%, and items with a non-deductible VAT rate of less than 5% will be converted to 0%.
Option 3: Transfer non-taxable items to taxable items with different tax rates.
Option 4: Allow domestic enterprises to choose tax calculation method.
VCCI recommends that the Ministry of Finance prioritize considering option 3 or option 4.
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