Should we continue to reduce the VAT by 2%?

The business community is awaiting amendments to the Value Added Tax Law to address shortcomings in practice. Source: quochoi.vn

According to the report of the National Assembly's Supervisory Delegation on the implementation of Resolution No. 43 dated January 11, 2022, of the National Assembly on fiscal and monetary policies supporting the socio -economic recovery and development program and the National Assembly's resolutions on a number of important national projects until the end of 2023, the projected VAT (value-added tax) reduction when developing the program was 49,400 billion VND. The actual reduction reached 44,458 billion VND, resulting in a reduction of 41,498 billion VND in state budget revenue in 2022 and a reduction of 2,960 billion VND in state budget revenue in January 2023, equivalent to 90% of the projected amount. This includes a reduction of approximately 25,200 billion VND in VAT on domestic production and business activities and approximately 19,258 billion VND in VAT on import and export activities.

The Government submitted to the National Assembly at its 5th and 6th sessions of the 15th National Assembly a proposal to continue applying the 2% VAT reduction policy, similar to that stipulated in Resolution No. 43, for the period from July 1, 2023 to December 31, 2023 and from January 1, 2024 to June 30, 2024.

Thus, the period for implementing the 2% VAT reduction policy is nearing its end. The question now is whether to extend the implementation period or stop it?

Last weekend, during the National Assembly's discussion of this issue, several National Assembly deputies proposed that the National Assembly consider extending the policy of reducing VAT by 2% on all goods until the end of 2024.

Mr. Ha Sy Dong, Permanent Vice Chairman of the Quang Tri Provincial People's Committee, stated that many opinions suggest extending the policy by a few more months to 2025 because this is a critical period for businesses. He argued that, as in the past, when lockdowns were just ending and flights were being restored, it was advisable to consider reducing aviation VAT to zero or other fees and taxes. This could help the aviation industry and other sectors recover and develop economically more quickly. In addition, National Assembly Deputy Mai Van Hai (from the Thanh Hoa National Assembly delegation) also suggested that the National Assembly consider extending the policy for a more appropriate period.

According to National Assembly Deputy Tran Anh Tuan (Ho Chi Minh City Delegation), the policy that has been successful and brought positive effects to the economy is the 2% VAT reduction. Besides the clear evidence that the policy has contributed to stimulating the economy and effectively supporting the production and business activities of enterprises, the 2% VAT reduction has also contributed to increasing corporate income tax. Therefore, Mr. Tuan proposed that the 2% VAT reduction policy be extended in the future.

The 2% VAT reduction was implemented during the Covid-19 pandemic, but things have now returned to normal. So, is further VAT reduction appropriate now? Over the past two years, nearly 44.5 trillion VND has been saved through this 2% VAT reduction, resulting in a significant budget deficit. Furthermore, the new wage policy will be implemented starting July 1st, 2024, requiring substantial resources.

During the monitoring process, the monitoring team also pointed out many shortcomings in the implementation of tax exemptions and reductions. Specifically, regarding the identification of certain goods and services that are not eligible for VAT reduction and those that are, and the lookup of business sector codes and HS codes when importing goods and raw materials, some businesses were not clear about which items belonged to the list of goods and services not eligible for VAT reduction.

Specifically, businesses that calculate VAT using a percentage-based method on revenue are granted a 20% reduction in the percentage rate used to calculate VAT when issuing invoices for goods and services eligible for VAT reduction. The amount of VAT reduction in this case is low, leading some businesses and buyers to be unwilling to comply. Furthermore, a significant number of small-scale household and individual businesses either do not issue or lack the resources to issue sales invoices, thus failing to manage their selling prices effectively.

National Assembly Deputy Nguyen Quang Huan (Binh Duong delegation) also disagreed with extending the 2% VAT reduction. Mr. Huan argued that Resolution 43 was implemented during the Covid-19 pandemic. While the support policy is valuable, it should only be applied for a short period of 1-2 years. Once socio-economic conditions return to normal, the system should revert to normal operations.

According to Mr. Huan, reducing VAT by 2% would result in a budget revenue drop of nearly 44.5 trillion VND, of which 25 trillion VND would be from domestic sales and 19 trillion VND from import and export. He questioned where the government would find the money to provide social welfare benefits to the poor when over 44 trillion VND is lost.

“VAT is essentially an indirect tax; it's collected from consumers and paid to the State, while businesses are unaffected. During the pandemic, when people weren't spending, a 2% tax reduction was perfectly appropriate to help businesses. Now that society has returned to normal, things must return to normal. Therefore, the 2% VAT reduction should be implemented until June 30, 2024, and then stopped,” Mr. Huan said.

Source: https://daidoanket.vn/co-nen-tiep-tiep-giam-2-thue-vat-10280926.html