The Ministry of Finance proposes to impose a tax rate of 5% on fertilizer products instead of not being taxed as currently, when amending the Value Added Tax (VAT) Law.
Currently, businesses are not allowed to declare and deduct VAT costs spent in the production process (input VAT), including investment and purchase of fixed assets, because fertilizers are not subject to this tax. This cost is then included in production costs, causing selling prices to increase and profits to decrease.
In the draft Law on Value Added Tax (VAT) currently collecting comments, the Ministry of Finance proposes to impose a tax rate of 5% on fertilizer products instead of not being taxed as currently.
According to this agency, most fertilizers imported into Vietnam are classified by exporting countries as subject to VAT, so their businesses receive input tax refunds and have the opportunity to lower selling prices.
"This causes disadvantages when competing with imported fertilizers," the Ministry of Finance stated.
Meanwhile, the State loses budget revenue due to not being able to collect VAT at the import stage while import tax is very low or has reached 0%. Farmers have to buy at high prices because domestic manufacturers push part of the tax cost into the price.
The Ministry said that fertilizer businesses, the Ministry of Industry and Trade, the Fertilizer Association and National Assembly delegates in many provinces and cities also reported the above difficulties and proposed to change this item to be subject to 5% VAT. .
Nitrogen is produced at the factory of Ca Mau Petroleum Fertilizer Joint Stock Company. Image: PVCFC
Commenting on the proposal to impose a 5% VAT tax on fertilizer products, Dr. Phung Ha, General Secretary of the Vietnam Fertilizer Association, said that this would create a fair playing field between domestic and imported manufacturers. Domestic manufacturing enterprises are also more equal when participating in international bidding. On the other hand, tax adjustments will help lower fertilizer prices, creating conditions for investment in high-quality, new generation projects.
A representative of a domestic manufacturing enterprise also proposed the need to promote amendments to the Law, bringing the fertilizer tax from 0% to 4-5% to ensure competition. "If we apply this tax, farmers will benefit from reduced fertilizer prices," he said.
If the proposal in this draft is approved, consumers buying fertilizer will be subject to an additional 5% VAT. However, the Ministry of Finance said that the selling price of these items is determined according to market supply and demand, and the reverse tax calculation can help consumers benefit.
According to the Department of Analysis, purchased goods and services are not subject to tax or a tax rate of 5-10%. If output VAT is calculated at 5%, domestic fertilizer production enterprises do not have to pay this tax. That is, the input tax amount is deducted from the output, or tax refunded. Therefore, fertilizer production costs are reduced, domestically produced goods have more competitive conditions with imported goods, according to the Ministry of Finance.
The drafting agency also said that due to VAT deduction, businesses save costs, have more resources to expand investment, innovate technology, improve quality and lower selling prices. Accordingly, consumers who choose domestic goods will benefit from this policy.
On the other hand, the Ministry of Finance cited the financial statements of the 5 largest fertilizer manufacturing companies as saying that the total revenue in 2022 of these businesses is nearly 48.000 billion VND. If a tax rate of 5% is applied, the output VAT amount is nearly 2.400 billion VND.
For example, DAP Joint Stock Company No. 2 - Vinachem still has 200 billion VND in non-deductible VAT, which will have to be paid to the budget. Assuming that other companies are the same as DAP No. 2 - Vinachem, state budget revenue is expected to increase by about 1.000 billion VND.
Fertilizer is a commodity used in agricultural production, so many countries offer preferential policies. Some countries such as Thailand, Laos, Myanmar, Philippines, Pakistan, and the US do not collect VAT on this item. Meanwhile, countries such as China, Romania, Croatia, and India collect taxes at low levels.
