Lesson 3 – Need to harmonize interests

If a 5% VAT is imposed on fertilizers, farmers will be the ones to suffer. However, it is not just a matter of loss or gain but also a matter of balancing interests.

Agricultural expert Hoang Trong Thuy had an interview with a reporter from Cong Thuong Newspaper about this issue?

As someone who is closely involved in the fields of agriculture, farmers and rural areas, what is your assessment of the issue of value added tax on fertilizers?

To answer this question, we look back at the history of VAT on fertilizers, which was first regulated in 1997 at a tax rate of 5%. By 2014, the economy had changed, to boost production and distribution, and promote agriculture, so the National Assembly decided not to impose VAT on this item.

For agriculture, sustainable development means investing in the lowest places. That is land, water, and farmers. (Photo: NH)

The decision, which took effect in January 2015, brought joy to farmers, with good harvests and growth in agriculture. Obviously, the policy brought immediate results. However, soon after, when the agricultural market encountered some problems, fertilizer enterprises received additional burdens, because input materials were taxed but not deducted from output, so they were added to product prices. The ultimate losers were farmers who had to buy fertilizer at higher prices.

When the policy of not imposing VAT on fertilizers came into effect, the whole country at that time had about 7,900 enterprises, many of which were struggling, evading the law, increasing prices, and some places produced fake fertilizers and poor quality fertilizers. In addition, many newly established enterprises appeared but traded VAT invoices, making the fertilizer market more complicated.

Regarding the market, since fertilizers were exempted from VAT, data from the Vietnam Fertilizer Association shows that total import volume fluctuates between 3.3-5.6 million tons/year; turnover from 952 million to 1.6 billion USD/year, while total domestic production capacity has increasingly narrowed from 3.5 million tons/year (before 2014) to 380,000 tons/year (since 2015).

Agricultural expert Hoang Trong Thuy. (Photo: Nguyen Chuong)

During this period, the Ministry of Industry and Trade said that on average each year, the market management force discovered and handled about 3,000 cases related to smuggled and fake fertilizers. According to experts' calculations, on average, fake fertilizers cause damage of 200 USD/ha, meaning that each year the agricultural sector loses up to 2.6 billion USD.

Putting fertilizers on the tax-free list has caused manufacturing enterprises to shrink, and imported goods have flooded into Vietnam because of more favorable competitive conditions. In the end, farmers still have to buy imported fertilizers at high prices, and the preference for 'foreign goods' has further increased the competitive advantage of imported fertilizers over domestically produced fertilizers.

Thus, besides the joy of fertilizer not being subject to VAT, helping to reduce fertilizer prices, farmers are also suffering losses due to the chaos in the fertilizer market.

Currently, in the National Assembly and across forums, there are many conflicting opinions on the issue of applying a 5% VAT on fertilizers. What is your opinion on this?

Returning to the story of the tax rate revision for fertilizers, we are still going around and around about who benefits and who loses. However, I think the problem here is to harmonize interests.

The story of imposing a 5% VAT on fertilizers or fertilizers being exempt from VAT, in my opinion, is just transferring the 'pain' of businesses to the 'pain' of farmers and vice versa.

No matter what we say, it is clear that the application of 5% VAT on fertilizers will be the loss for farmers. We should not 'beat around the bush' because it is clear that when the authorities impose taxes, farmers will have to pay more to buy fertilizers.

The question is, what do we do to reduce the pain for farmers? My point of view is to regulate again, at the same time, the State needs to stabilize prices.

What is the basis for regulating farmers and agriculture, sir?

Firstly , in the four roles of VAT, one role is to regulate income for organizations and individuals consuming goods and services. Farmers are the final consumers, so they must pay taxes according to the law, because clearly, thanks to fertilizers, crops increase productivity. Farmers who bring their products to the market must pay taxes.

Second , in the principle of taxation, the scope of regulation is wide. Farmers are the users of fertilizers, so of course farmers should be the ones to enjoy this regulation. This helps to reduce farmers' worries.

Third , agriculture is a 'measure' of the country's durability. If we want agriculture and businesses to develop sustainably, state regulation must be large enough and sustainable. Meanwhile, fertilizers are both a factor in increasing productivity and a factor in polluting the soil and emitting greenhouse gases.

Mr. Tran Van Chien - Director of Truong Khuong A Fruit Growing Cooperative takes care of the star apple garden. (Photo by Nguyen Chuong)

“A high mountain must have land underneath.” For agriculture, sustainable development means investing in the lowest places. That is land, water, and farmers. Obviously, if we do not invest in the lowest places, we will not be able to talk about the top. And so, we need to look at agriculture with enough ‘love’.

I agree with the view of imposing a 5% VAT on fertilizers. However, I think the government must commit to re-regulating, at least approximately or equal to 5% for sustainable agricultural development.

The question is how to regulate? I think we can focus on the following four things. First , soil improvement because soil is the health of plants. However, this has not been given due attention in the past. The agricultural sector blames the natural resources and environment sector and vice versa, which leads to soil improvement being the weakest link in agricultural production resources.

Second , support farmers and cooperatives to use organic fertilizers. Farmers' associations in Ninh Binh, Nghe An, etc. are implementing a lot of organic fertilizers. This helps improve the soil, ensure the health of crops, take advantage of the ecosystem from FTAs ​​to promote exports, and create a driving force for regional agricultural products.

Third , support for farmer training and education.

Fourth , support green production and regional green growth to reduce greenhouse gas emissions.

According to the principle of the market mechanism, when agriculture grows by 1%, we must reinvest 4% to ensure balance, otherwise it will "cut" the environment. Vietnam's agriculture has grown by an average of 3.5-3.8% in the past 10 years, at that time, we must reinvest in agriculture from 12-15.2%, but in reality, for many years, the state's investment in agriculture has only stopped at 8.8%, thus meeting only 2/3, the rest farmers have to pay for themselves. These are the things that the state "owes" farmers. If not invested properly, the environment will be destroyed.

Looking at Japan, there are only 2 million farmers, agricultural growth is only 1.6% but they invest back in agriculture 7 times higher. Agriculture must affirm that it is a measure, if we want agriculture to develop sustainably, the State's regulation must be large enough and sustainable.

Therefore, I also recommend that the drafting agency continue to survey and clarify the scientific nature and impact of the policy to ensure harmonious benefits. The 5% VAT rate is the basis for long-term assurance of agricultural development, but it is necessary to regulate the budget revenue to farmers, so that the policy is not just a "fruit" that can only be smelled without having practical impact.

Thank you!

Agricultural expert Hoang Trong Thuy:

Policy is not a shower that everyone can benefit from, but some places have rain and some do not. We cannot be extreme in protecting an economic component without scientific basis, so the issue of harmonizing interests is the most important. Especially when fertilizers account for a particularly large proportion in cultivation, having a great impact on the agricultural production value chain.

VAT on fertilizers: Final article - Voices from practice

Source: https://congthuong.vn/thue-vat-voi-mat-hang-phan-bon-bai-3-can-hai-hoa-loi-ich-358006.html