Practical basis for bringing fertilizer back to the subject of 5% VAT

Applying a 5% VAT helps proactively ensure the development of fertilizer supply for agriculture from domestic production.

Before implementing Tax Law 71/2014/QH13 (Law No. 71), fertilizers, machinery, and specialized equipment serving agricultural production were subject to a VAT rate of 5%. Accordingly, goods and services subject to this tax rate were entitled to input VAT deduction.

From January 1, 2015, Law No. 71 took effect, these items have been converted into objects not subject to value added tax and are not deductible for input VAT.

Reality over the past time has shown that the regulation of putting fertilizers, machinery and specialized equipment serving agricultural production into the category of non-VAT (Clause 1, Article 3 of Law No. 71) has limited the development and investment in domestic fertilizer production, and at the same time failed to achieve the goal of reducing the selling price of fertilizers when building Law No. 71.

Sharing at the recent Conference on Dissemination of the Project on Improving Soil Health and Plant Nutrition Management in Hanoi , Dr. Phung Ha, Chairman of the Vietnam Fertilizer Association, said that since Tax Law 71 took effect, in the fertilizer sector, the number of enterprises investing in building high-tech and green-tech fertilizer factories is very small, one of the main reasons being the limitations of Tax Law 71.

According to Dr. Phung Ha, Chairman of the Vietnam Fertilizer Association, putting fertilizers under value added tax (VAT) is nothing new, because previously this item was already subject to 5% VAT.

Therefore, according to Dr. Phung Ha, changing fertilizer products to be subject to 5% VAT so that manufacturing enterprises can declare and deduct input VAT on goods and services, including investment activities and purchase of fixed assets for fertilizer production activities, is very necessary and consistent with the Development Strategy of Vietnam's chemical industry to 2030, with a vision to 2040.

According to experts, the amendment of the regulation on fertilizer products applying a VAT rate of 5% has the following positive impacts:

For consumers: Farmers buy domestically produced fertilizers at lower prices, domestic manufacturers are refunded input VAT so production costs are reduced, thus selling prices are reduced.

Imported fertilizers are subject to 5% VAT. However, the output of imported fertilizers (26.7%) is lower than domestically produced fertilizers (73.3%), so overall consumers still benefit more.

For enterprises: Input VAT (arising domestically and at the import stage) of fertilizer production enterprises will be deducted or refunded according to the provisions of VAT law.

Enterprises have more resources to promote production and business, increase capital accumulation, invest in depth, innovate technology to create new generation, high-quality fertilizer products, reduce product costs, and gain an advantage when competing with imported fertilizers.

Applying a 5% VAT also helps ensure the development of fertilizer supply for agriculture from domestic production, contributing to ensuring sustainable agricultural development, strengthening the relationship between industry - agriculture - farmers and rural areas.

Meanwhile, domestic prices for fertilizers are formed according to market mechanisms, and enterprises producing, importing and trading these products have the right to set their own prices according to market signals.

Impact on the market: The imposition of a 5% VAT contributes to promoting the domestic fertilizer production industry as an input for the agricultural sector, creating a stable supply for farmers, reducing dependence on imported sources, overcoming unstable prices, as well as price fluctuations of imported fertilizers, contributing to ensuring more sustainable agricultural development.

For the state budget: The state budget will collect the entire amount of VAT applied to imported fertilizers.

When applying 5% VAT, the production and business efficiency of domestic enterprises is improved due to increased opportunities to compete with imported goods, promoting domestic production. Thereby, contributing to the state budget from corporate income tax revenue.

Minh Khang - Tran My

Source: https://www.pvn.vn/chuyen-muc/tap-doan/tin/15f251d7-a2c9-4ce5-bcbf-dce8ca697a14