The Government proposes to continue reducing value added tax

In a drastic move to stimulate domestic consumption and support economic recovery, the Government has proposed a new National Assembly Resolution to reduce value-added tax (VAT) by 2% in the second half of 2025 and throughout 2026. This policy, detailed in the Government’s Submission No. 206/TTr-CP and reviewed by the Economic and Financial Committee, aims to support businesses, increase purchasing power and achieve the GDP growth target of 8%.

Tax cuts boost economic growth

The Government 's proposal to reduce VAT from 10% to 8% for a range of goods and services reflects a strategic effort to stimulate domestic consumption and support businesses amid economic challenges. Following the success of VAT reductions from 2022 to mid-2025, which supported businesses and people with about VND133.1 trillion, the new policy extends the tax reduction period to 18 months, from July 1, 2025 to December 31, 2026. Unlike previous resolutions, this proposal expands the scope of application, including previously excluded items such as information technology products, refined petroleum products, chemical products and gasoline, in order to reduce production costs and consumer prices.

The policy is in line with broader economic targets set out in National Assembly Resolution No. 192/2025/QH15, which targets GDP growth of 8% in 2025 to lay the foundation for double-digit growth in 2026-2030. The government has highlighted the need to stimulate domestic consumption, which is expected to grow by 12% in 2025, as a key reason for this target. By reducing VAT, the policy aims to lower prices of goods and services, thereby boosting purchasing power, encouraging businesses to expand and creating more jobs. The inclusion of gasoline in the VAT reduction is particularly important, given its wide-ranging impact on production and consumption costs, helping to stabilise prices in a volatile global energy market.

To mitigate the expected revenue shortfall of VND121.74 trillion (VND39.54 trillion in 2025 and VND82.2 trillion in 2026), the Government proposes a multi-pronged approach. Measures include boosting revenue collection through digital transformation, cracking down on tax evasion in high-risk sectors such as e-commerce and real estate, and applying artificial intelligence to improve tax administration. In addition, the Government plans to optimize public spending, use reserve funds, and mobilize other legal resources to ensure fiscal balance. These measures aim to offset the revenue shortfall while maintaining macroeconomic stability and controlling inflation, which is well managed at 3.63% in 2024 and 3.22% in the first quarter of 2025.

The proposal also highlights Vietnam’s commitment to its international obligations, with a thorough review confirming that the VAT reduction is in line with global trade agreements. By focusing on goods and services that directly benefit consumers and producers, the Government aims to create a competitive business environment without compromising national security or administrative efficiency. Policy implementation is simplified, leveraging existing tax administration systems, ensuring that no additional costs are incurred for taxpayers or regulators.

Support but fiscal concerns

The Committee on Economic and Financial Affairs largely supported the Government’s proposal but expressed important concerns about the fiscal and policy implications, calling for careful consideration to ensure long-term sustainability. The Committee recognised the need for VAT relief to support businesses and stimulate growth in a challenging economic context, with global uncertainties and domestic constraints. The scope of the extension and the 18-month duration of the policy were considered appropriate to provide businesses with certainty in planning and boost consumption, contributing to the 8% growth target.

However, the Committee pointed out some risks. A major concern is that the VND39.54 trillion revenue shortfall in 2025, which has not been included in the state budget plan, could put pressure on fiscal reserves and limit the ability to respond to future economic crises. Some opinions said that the continuous extension of VAT reductions sets a bad precedent, weakening the stability and consistency of tax policy, especially after the recently passed amended VAT Law. They warned that prolonged tax reductions could saturate the policy's stimulus effect, reducing the ability to boost consumption as expected.

The committee also debated the scope of the policy, with some submissions suggesting a uniform reduction in VAT for all goods and services to ensure fairness and simplify implementation. Currently, exclusions such as telecommunications, financial services, real estate and most excise taxable items create administrative complexity and potential inequities. However, others urged caution in extending the policy, citing Vietnam’s steady economic recovery – reflected in GDP growth of 7.09% in 2024 and 6.93% in Q1 2025 – as a reason to prioritize fiscal prudence over broad tax cuts.

Legally, the Committee agrees that a standalone Resolution of the National Assembly is appropriate, given the extended duration and the expanded scope of the policy, ensuring compliance with the Law on Promulgation of Legal Documents. However, the Committee recommends that the Resolution be framed as a pilot to accommodate the differences with the amended Law on VAT, enhancing legal certainty. The Committee also calls for a thorough impact assessment to balance the benefits of the policy and the fiscal costs, while ensuring consistency with other tax policies such as environmental protection tax and special consumption tax, in order to maintain medium-term fiscal stability and public debt safety.

Source: https://thoibaonganhang.vn/chinh-phu-de-xuat-tiep-tuc-giam-thue-gia-tri-gia-tang-164116.html