Considering to impose 5% of VAT on fertilizers

Production line of domestic fertilizers. Source: Internet

According to the draft amendment to the Value-Added Tax (VAT) Law, fertilizers are expected to be subject to VAT at a rate of 5% to remove difficulties for domestic producers, ensuring that this item can compete with imported products of the same type.

The draft amendment to the Value-Added Tax (VAT) Law proposes to subject fertilizers to VAT at a rate of 5%. This change is intended to address the difficulties faced by domestic fertilizer producers and ensure that their products can compete with imported fertilizers.

In the draft Law on VAT, fertilizers are subject to 5% VAT instead of not being taxed as currently prescribed (Law No. 71/2014/QH13 dated November 26th, 2014). It came from the fact that in the process of implementation, there are petitions of affected subjects. Accordingly, from the difficulties in practice, fertilizer enterprises have proposed to transfer fertilizer products to taxable objects to be deducted from input VAT.

According to the Ministry of Finance, during the implementation of the aforementioned regulations, fertilizer manufacturing enterprises have requested amendments to the issue that they are not allowed to declare and deduct input VAT for goods and services, including investment and fixed asset procurement activities serving fertilizer production, which must be included in production costs, leading to increased costs and reduced profits. This puts them at a disadvantage in competing with imported fertilizers. The lack of capital has also made it difficult for enterprises to take the initiative in investing and expanding production.

In addition to the proposals from fertilizer manufacturing enterprises, the Ministry of Finance has also received recommendations from the Ministry of Industry and Trade and the Fertilizer Association, reflecting the difficulties faced by fertilizer manufacturing enterprises and proposing that fertilizers be subject to VAT at a rate of 5%. In addition, the government leadership has also issued many documents directing the Ministry of Finance to study and amend the VAT policy to remove difficulties for fertilizer production projects. Delegations of National Assembly deputies from provinces and cities such as Bac Giang, Ca Mau, Binh Dinh, Hai Phong, Nam Dinh, and Tien Giang have also sent recommendations to the Minister of Finance proposing to amend the VAT policy for fertilizers and implement the requirements of the National Assembly at point d of Clause 2 of Resolution No. 101/2023/QH15 dated June 24, 2023, on the 5th session of the 15th National Assembly. The Government has reviewed the system of legal documents, in which it proposes to move fertilizers from the category of goods not subject to VAT to the category of goods subject to VAT at a rate of 5%.

According to the drafting agency, international experience shows that fertilizers are a commodity that serves agricultural production, so the VAT policy of many countries is designed to be more preferential than other ordinary commodities. The Governments of many countries have adopted various policies and support programs to create favorable conditions and promote the development of the fertilizer industry. Among these, tax support policies are also commonly used tools by various countries.

Based on the practical experience and evaluation of the benefits of adjusting the VAT rate for fertilizers, Mr. Do Duc Hung, Deputy General Director of Apromaco Agricultural Materials Joint Stock Company, expressed at the recent seminar "Fertilizer Industry and Tax Policies" that the enterprises strongly hoped that the State would consider and amend the Tax Law No. 71 to include fertilizers in the scope of VAT-taxable goods and set a specific VAT rate of 5% for this item. If this proposal is accepted, it will bring several benefits to the company.

According to Mr. Do Duc Hung, businesses will save a significant amount of money due to being able to claim back a portion of their input tax. When costs are reduced, product prices will also decrease, and according to the inevitable law of competition, the selling price to farmers, although initially increasing due to taxation, will also decrease in the long run. In addition, businesses will have more motivation to invest in research and development of new-generation high-quality fertilizer projects, bringing overall benefits to society: creating jobs, participating in exports to earn foreign currency, improving product quality, enhancing the efficiency of the agricultural sector, and thereby increasing farmers' income.

Mr. Do Duc Hung also emphasized that including fertilizers in the list of VAT-taxable goods and setting a specific VAT rate of 5% will also contribute to fairer competition with imported fertilizers, especially those from countries with zero import tariffs on fertilizers, such as China and ASEAN.

"Currently, fertilizer importers do not have input VAT, giving them a competitive advantage over domestic fertilizer producers. If this situation continues, domestic fertilizer producers will face extreme difficulties, low production and business efficiency, and narrow production. The new tax rate will create fairer competition between domestic and imported fertilizers on the market. Our company accepts competition, but it must be fair competition," Mr. Do Duc Hung emphasized.