When Law No. 71/2014/QH13 (Tax Law 71) came into effect (2015), fertilizers were changed from being subject to 5% VAT to being exempt from VAT. This seemed to be beneficial to farmers, and fertilizer prices would decrease. However, the reality over the past 10 years has proven to be the complete opposite, with fertilizer prices not only not decreasing as expected, but also increasing.
That is why immediately after that, that is, for nearly 10 years, many opinions proposed to make fertilizer subject to 5% VAT as before Tax Law 71 with the goal of bringing benefits to agriculture and farmers because fertilizer prices will decrease.
According to analysts, when applying a 5% VAT on fertilizers, agriculture and farmers will benefit compared to the current regulation of no tax.
The question is why when fertilizers are subject to 5% VAT , the price decreases and vice versa?
Firstly, according to current law, fertilizers are not subject to VAT, but in fact, the current selling price of fertilizer products already includes input VAT, usually at a rate of 10%. This is the tax that fertilizer manufacturing enterprises must pay to the State when purchasing domestic machinery and raw materials to produce fertilizers.
So why does the selling price have this tax?
Back in the past (before Tax Law 71 took effect), fertilizer production was mainly subject to input tax of 10% and output tax of 5%. However, input tax was deductible and even refunded because this tax rate was higher than output tax. However, now, when applying Tax Law 71, enterprises are not allowed to deduct input tax, but must account for it in expenses. This causes the production and business costs of fertilizer enterprises to increase significantly, leading to an increase in the final selling price to farmers.
To put it simply, the enterprise now advances the input VAT to the State, and then collects it from farmers when selling goods. In the end, it is the farmers who have to bear this 10% input VAT.
On the contrary, if fertilizers are transferred to the 5% VAT taxable item, the above input tax will be refunded to enterprises by the State, and the State will collect 5% output VAT from farmers.
Specifically, the selling price of fertilizer products is made up of the price excluding VAT (this part belongs to the enterprise) plus VAT (the part belongs to the State), so when applying a 5% tax, the selling price will be lower than before when there was no output VAT, but there was a 10% input VAT. Therefore, it can be affirmed that when applying a 5% VAT, the price of fertilizer will definitely decrease.
And when farmers pay 5% tax, they are actually paying less tax than if fertilizers were not subject to VAT. So it is the farmers who benefit.
Not only that, if considered at the same time, under the same conditions, applying a 5% VAT will make the selling price to farmers lower, which is more beneficial to farmers than not applying a VAT. Because the price of goods consists of two parts: the selling price excluding VAT (this price depends on the price level in the world and domestic markets) and VAT. As analyzed above, paying a 5% output VAT is lower than paying a 10% input VAT.
As for businesses, in both cases with or without VAT , they only collect their due share, no more, no less.
When applying 5% VAT, farmers benefit because fertilizer prices decrease. (Photo: Phu My Fertilizer representative and farmers visit a model field in Long An)
However, many market economic experts also emphasize that considering adjusting VAT policy on fertilizers is also related to an equally important issue, which is to restore a level playing field for domestic and foreign goods.
According to current regulations, domestic fertilizer prices are subject to input VAT , while imported goods are not subject to VAT at all, both at the place of production and in Vietnam. Therefore, imported goods currently have a clear price advantage, causing domestically produced fertilizers to struggle to compete and lose out right at home.
More importantly, if this situation persists, investors will hesitate to invest in developing domestic fertilizer production, especially high-tech projects, partly because they will not be refunded VAT and partly because they do not have a competitive advantage over imported goods. This leads to the risk of the domestic fertilizer industry going backwards and the ultimate consequence is the risk of losing agricultural security.
Meanwhile, if a 5% VAT on fertilizers is applied, both domestic and imported goods will be brought to a common level, ensuring fair competition, thereby creating motivation for the domestic fertilizer industry to develop, promoting the development of the country's agriculture.
L. Truc
Source: https://www.pvn.vn/chuyen-muc/tap-doan/tin/81fab94d-9fca-47fd-a211-20bd59cd28dd
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