Ensure harmony of interests of “3 parties” when applying 5% VAT on fertilizers

VAT policy for on-the-spot imports

In the long term, farmers will benefit from the application of VAT on fertilizers. Photo: Internet

Imposing tax brings overall benefits

Regarding the VAT policy on fertilizers under the current law, Dr. Phung Ha, Chairman of the Vietnam Fertilizer Association, said that as per the provisions of Law No. 71/2014/QH13 amending the Law on Value Added Tax No. 13/2008/QH12, fertilizers are one of the items not subject to VAT.

This means that the domestic fertilizer manufactures are not allowed to deduct or refund VAT on purchased goods and services, including VAT on purchased or imported goods to create fixed assets for fertilizer production.

According to Dr. Phung Ha, when transferring fertilizer products from the subject to 5% VAT to not subject to VAT, fertilizer production enterprises cannot get VAT deductions for input goods and services. The input VAT is included in expenses when calculating corporate income tax, causing the sharp decrease in the profits of fertilizer manufactures.

“The application of 5% VAT on fertilizers will contribute to increasing the state revenue through other tax revenues such as Corporate income tax, Personal income tax…”, Dr. Phung Ha emphasized.

The representative of the Vietnam Fertilizer Association cites data from the Ministry of Finance, as saying that about VND10,000 billion of VAT has not been deducted from business expenses from 2015 to present.

For example, in the period 2016-2020, the PetroVietnam Fertilizer and Chemicals Corporation (PVFCCo) had an input VAT of VND1,857 billion, including VND284 billion in 2016; VND371 billion in 2017; VND518 billion in 2018; VND358 billion in 2019 and VND326 billion in 2020.

This tax must be accounted for in expenses, leading to a corresponding decrease in annual pre-tax profit. Dr. Phung Ha said that when not receiving VAT refund, fertilizer manufactures have two options: the corresponding decrease in annual pre-tax profit or the adjustment of selling price, causing the increase in price of fertilizer to consumers.

Additionally, the non-application of VAT also affects the competitiveness of domestic fertilizer manufactures.

Accordingly, applying Law 71, imported fertilizers will not be subject to VAT, which bring benefit for foreign manufacturers when exporting fertilizers to Vietnam and seriously affects domestic manufacturing enterprises.

When applying Law 71, enterprises will not invest or hesitate when investing in domestic fertilizer production, especially fertilizers that contribute to reducing greenhouse gas emissions and reducing the impact of climate change because they will not be refunded VAT for factories and equipment.

The representative of the Vietnam Fertilizer Association said that transitioning fertilizers to be subject to a 5% VAT is essential.

The State, farmers and enterprises gain benefit

Amending the VAT on fertilizers is one of the contents that attracts great attention from the community, production and business enterprises, and farmers nationwide.

There are currently different views on this issue. On the one hand, there are opinions that amending the VAT on fertilizers is necessary, on the other hand, there are also many opinions that amending the VAT will only benefit fertilizer production enterprises, while farmers will have to bear this tax.

According to Dr. Nguyen Tri Ngoc, Vice President and General Secretary of the Vietnam General Association of Agriculture and Rural Development, applying a 5% VAT on fertilizers brings benefits to three parties, including the State, farmers and fertilizer production enterprises.

In the short term, the VAT application on fertilizers may increase fertilizer prices, and raise production costs for farmers, but it will benefit for them in long term.

Regarding the budget, statistics from the revenue management agency show that VAT revenue always accounts for a high proportion of the total state budget revenue.

Therefore, imposing VAT on fertilizers will help increase the revenue. In the short term, when fertilizer prices go up, it will increase the cost for farmers.

However, in the longer term, farmers will benefit from the 5% VAT application on fertilizers.

Accordingly, fertilizer production enterprises are entitled to deduct input tax, so investment and production costs will reduce. The enterprises will have the motivation to invest in research, technological innovation, production of high-tech and new-generation fertilizers to help enhance productivity and production efficiency, thereby increasing crop yields, improving product quality, and increasing the efficiency of sustainable cultivation.

The tax revenue from fertilizers helps the State increase spending on scientific research activities... thereby helping farmers improve production efficiency per unit area, and enhance the competitiveness of domestic agricultural products.

Dr. Tran Thi Hong Thuy, Project on Enhancing Competitiveness of the Private Sector in Vietnam, said that the selling price of fertilizers to consumers such as urea, DAP and phosphate fertilizers in the country may decrease, NPK fertilizer prices may increase insignificantly or remain the prices; imported urea, DAP, NPK prices may go up.

Specifically, after enterprises are deducted tax, the prices of domestically produced fertilizers such as urea will decrease 2%, DAP down 1.13%, phosphate down 0.87%, NPK up 0.09%, thereby, decreasing by about VND453 billions of the costs for farmers.

On the contrary, the prices of imported fertilizers increase by 5%, the costs of farmers will raise about VND988 billion. According to Dr. Tran Thi Hong Thuy, the scenario of applying a 5% VAT will likely lead to changes in the prices of fertilizer products, in which domestically produced fertilizers will have more competitive advantage in price compared to imported products.