Reduce VAT, increase consumer demand

Business and production activities remain challenging, and domestic purchasing power shows signs of slowing growth... Therefore, continuing to reduce VAT by 20% in the first six months of 2025 for certain groups of goods with a 10% tax rate is necessary.

Both people and businesses want to continue reducing VAT in 2025 - Photo: QUANG DINH

This was the statement made by the Ministry of Finance when soliciting feedback on a draft resolution of the National Assembly proposing a 20% reduction in VAT (from 10% to 8%), in accordance with the directive in the resolution recently issued by the Government.

However, many citizens and businesses believe that a 20% reduction in VAT for the entire year of 2025 should be considered, instead of just for six months, given the ongoing economic difficulties and the lack of significant improvement in purchasing power.

Should VAT be reduced for the entire year of 2025?

In discussions with us, many citizens and businesses highly appreciated the government 's proposal, stating that not only are businesses facing difficulties due to weak purchasing power, but the lives of many wage earners are also facing immense hardship due to sharply reduced incomes while the prices of goods are all rising.

However, many opinions suggest that VAT should be reduced by 20% for the whole year of 2025 to stimulate purchasing power, instead of only extending it until mid-2025 as proposed.

Ms. LTT (Cau Giay District, Hanoi) said that the prices of many essential goods and services have increased, such as tuition fees and bus fares for students in Hanoi, which increased from 100,000 to 140,000 VND/month. Even rice has increased to 20,000 - 22,000 VND/kg, while three years ago it was only 15,000 VND... Meanwhile, the income of many salaried workers like her has decreased sharply compared to before the Covid-19 pandemic, even in many places it has decreased by 30 - 40%.

"Many businesses are still facing difficulties due to reduced demand, many businesses have had to close, especially those selling goods and services... Therefore, extending the VAT reduction until the end of 2025 will not only help people but also benefit businesses when purchasing power is improved...", Ms. LTT said.

Also proposing to extend the VAT reduction until the end of 2025 to stimulate consumption and promote domestic production and business activities, Mr. HMK, the owner of a business in Hai Phong, said that many countries are applying policies to stimulate domestic consumption to support people and businesses.

For example, at supermarkets in South Korea, foreign customers not only receive VAT refunds but also get shopping vouchers worth approximately 200,000 - 300,000 VND per day per person when purchasing domestic goods in the country.

"Therefore, to promote the development of domestic production, extending the VAT reduction policy is necessary in the context of still very low global purchasing power, and domestic consumption is expected to be the driving force for economic growth," Mr. HMK affirmed.

Source: Ministry of Finance - Graphics: Tuan Anh

Extending tax cuts, gains outweigh losses

Speaking to Tuoi Tre newspaper, Dr. Nguyen Ngoc Tu, a tax expert, suggested extending the VAT reduction until the end of 2025 because this policy has proven effective in recent years.

"As the Ministry of Finance noted, the VAT reduction policy in 2022 contributed to stimulating domestic consumption, resulting in a nearly 20% increase in total retail sales of goods and consumer service revenue in 2022 compared to 2021," Mr. Tu affirmed.

Meanwhile, according to Mr. Tu, tax reduction does not reduce budget revenue but on the contrary, the budget revenue increases. In fact, by the end of the first 10 months of 2024, total budget revenue reached 1,654 trillion VND, equal to 97.2% of the year's estimate and an increase of 17.3% over the same period last year. This figure shows the significance of the State's support policy, including VAT reduction from 2022 to present.

"The 20% reduction in VAT helps make the price of goods cheaper for consumers. For example, an item costs 1 million VND, when the VAT rate is 10%, the total amount to be paid is 1,100,000 VND. But thanks to the tax reduction to 8%, the amount that the buyer only has to pay for that item is 1,080,000 VND. With the surplus money thanks to the tax reduction, people buy more goods. And when consumption of goods and services is vibrant, production and business enterprises will increase revenue, thereby contributing more to the budget," Mr. Tu analyzed.

Another tax expert also suggested that, in addition to extending the VAT reduction until the end of 2025, this policy should apply to all goods with a 10% tax rate, without excluding certain groups such as real estate businesses and banks.

"The 2% reduction in VAT from 2022 to the present has already shown the effectiveness of the policy, so now it's just a matter of implementation. Items with a 5% VAT rate should be raised to 8%, and items with a 10% VAT rate should be reduced to 8%," this person suggested.

VAT reduction, total retail sales and service revenue increase sharply

According to information in the proposal to build a National Assembly resolution project on VAT reduction that is being put out for comments, the Ministry of Finance said that in 2022, the 2% VAT reduction policy has supported businesses and people with a total of about 51,400 billion VND, contributing to stimulating increased domestic consumption, thereby increasing total retail sales of goods and consumer service revenue in 2022 by 19.8% compared to 2021.

In 2023, the 2% VAT reduction in the last 6 months of the year also supported businesses and people with a total of about 23,400 billion VND, helping total retail sales of goods and consumer service revenue increase by 9.6% compared to 2022. With this policy, the VAT reduction for the whole year is estimated at about 49,000 billion VND, but budget revenue still achieved quite good results.

"The policy of reducing VAT by 2% on certain groups of goods has stimulated consumer demand, contributed to promoting production and business development, and created more jobs for workers," the Ministry of Finance assessed.

National Assembly representative Pham Van Thinh:

Need to further study consumer stimulus policies

Against the backdrop of continued global demand decline, slow recovery of major trading partners, and lingering risks of disruption to global supply chains and value chains, domestic consumer demand is seen as a crucial driver for economic growth.

Therefore, proposing a further 2% reduction in VAT for another six months in 2025 is necessary. However, in my opinion, the Government should assess the economic context and budget revenue and expenditure to consider reporting to the National Assembly on a 2% VAT reduction for the entire year of 2025 instead of just six months as proposed.

Furthermore, continued reductions throughout the year will facilitate accounting for businesses and enterprises. In addition, the government could explore other policies to stimulate domestic consumption.

Although the VAT tax will be reduced by 2% in 2024, estimated at VND49,000 billion, the budget revenue will still achieve good results. The socio-economic situation in 2024 will be more positive month by month and higher quarter by quarter. GDP growth in the first 9 months will reach 6.82%, and the whole year is estimated at 6.8 - 7%, higher than the target assigned by the National Assembly (6 - 6.5%), belonging to the group of countries with high growth rates.

Source: https://tuoitre.vn/giam-thue-vat-tang-kich-cau-tieu-dung-20241122083403771.htm