Should the 2% VAT reduction target be expanded?

The Government's proposal to continue reducing VAT is probably agreed by many National Assembly deputies. Partly because this policy, after 3 implementation phases (the whole year of 2022, the last 6 months of 2023 and the first 6 months of 2024), has achieved its set goals, which are to stimulate consumption, promote production and business development. The Government's report said that the 2% VAT reduction policy has supported businesses and people with about 11,488 trillion VND in the first 3 months of 2024; 23.4 trillion VND in the last 6 months of 2023; 51.4 trillion VND in the whole year of 2022. Correspondingly, according to data from the General Statistics Office, total retail sales of goods and consumer service revenue in the first quarter of 2024 increased by 8.2% over the same period last year; Q3 and Q4.2023 increased by 7.5% and 9.3% respectively, the whole year increased by 9.6%; in 2022 increased by 19.8%.

On the other hand, difficulties are still haunting businesses. In the first 5 months of this year, more than 97,000 businesses withdrew from the market, an increase of 10.5% over the same period last year. Growth forecasts are all lower than the target set by the National Assembly. Total retail sales of goods and consumer service revenue in the first 5 months of the year, although growing quite well (8.7%), are still lower than the same period in 2023 and the years before the pandemic. This shows that household final consumption has improved somewhat but is not sustainable. Meanwhile, total domestic consumer demand is considered an important driving force to promote economic growth. Therefore, continuing to reduce VAT is necessary to reduce the cost of goods and services, thereby promoting total domestic consumer demand and production and business activities of enterprises.

The question here is whether to expand the group of goods and services that are subject to a 2% VAT reduction or not? According to the reflection of the Vietnam Federation of Commerce and Industry (VCCI), recently, businesses have encountered many difficulties in classifying which goods are subject to 10% tax and which goods are subject to a tax reduction of 8%. Some businesses have to hire additional accountants to adjust invoices and books to match the new tax rate. Many businesses negotiate the purchase and sale of goods, agree with customers on quantity, quality, and price but do not agree on the tax rate of 8% or 10%, so they cannot sign the contract. There are also cases where businesses implementing construction contracts have disputes with partners when settling accounts simply because the two parties have different views on the tax rate. To avoid social costs and increased risks in production and business activities of enterprises, VCCI proposed a plan to reduce VAT for all types of goods and services from 10% to 8%.

Supporting the option of continuing to reduce VAT in 2024, the Vietnam Institute for Economic and Policy Research (VEPR) also proposed considering expanding the scope of application, as stated by VCCI. However, the reason given by VEPR is that domestic consumption - the driving force of growth - is still weak and has not recovered compared to before the Covid-19 pandemic. Before the pandemic, consumption contributed 7.1% to growth, but throughout 2023 until the first quarter of 2024, consumption contributed only 4.9%.

Should Whether to expand the scope of VAT reduction or not - this issue will be considered by National Assembly deputies from many aspects. Tax reduction for all types of goods and services is what businesses and people want and will bring positive effects to the economy, but "cutting your coat according to your cloth" in the context of the state budget not being really abundant is also something that needs to be taken into account.

Source: https://daibieunhandan.vn/chinh-sach-va-cuoc-song/co-nen-mo-rong-doi-tuong-giam-2-thue-vat--i375596/