Fixing VAT rates with fertilizers brings dual benefits to "3 houses"

When the VAT Law is amended, domestic fertilizer businesses will have better opportunities to capture the market. Source: Internet

Assessment of the current VAT Law, at a seminar on "The Fertilizer Industry and Tax Policies" organized by the Audit Newspaper, Mr. Phung Ha, Vice President and General Secretary of the Vietnam Fertilizer Association, stated that after nearly 10 years of implementation, the VAT Law has had many advantages, contributing to the socio-economic development of the country as well as the revenue of the state budget.

However, Mr. Ha also acknowledged that there have been some shortcomings in the implementation. For instance, for production, the conversion of fertilizers to non-VAT-subject items has resulted in all input VAT for fertilizer production and business not being deductible and having to be accounted for as costs, causing the profits of fertilizer manufacturing enterprises to decline significantly.

In addition, when applying Law No. 71/2014/QH13, imported fertilizers are not subject to VAT. This benefits foreign manufacturers when exporting fertilizers to Vietnam without having to bear VAT costs and affects domestic manufacturers.

The non-deduction of VAT for machinery, equipment, installation, etc., leads to an increase in total investment, reduces project efficiency, and makes businesses hesitant to invest in new projects for new-generation and high-tech fertilizers.

Sharing the specific case of an enterprise, Mr. Do Duc Hung, Deputy General Director of Apromaco Agricultural Materials Joint Stock Company, a company specializing in the production, business, and import-export of fertilizers, said that before 2015, when the VAT rate for fertilizers was 5%, the company was still able to deduct taxes when carrying out investment activities, purchasing, and paying costs. However, after the Tax Law 71 took effect from January 1, 2015, fertilizers are no longer subject to VAT, so the company is no longer able to claim a refund of this tax difference.

Over the past 10 years, the company has carried out many investment activities to improve the technology of superphosphate production, install additional NPK lines, etc., to increase the output and especially the quality of fertilizers for agricultural production. "However, input taxes from investment activities and raw material costs are not deductible, so they have to be added to the cost, leading to an increase in total investment and production costs, which forces the selling price to increase," Mr. Do Duc Hung said.

In addition, the increase in selling prices depends on supply and demand factors, so businesses cannot increase prices too high to compensate for costs, which will result in losses and the consequence of inefficient business operations, leaving no capital for reinvestment and research and development. In the past 10 years, the amount of non-deductible VAT has been around VND300 billion.

Currently, in the draft VAT Law (amendment) being consulted by the Ministry of Finance, fertilizers are expected to be transferred from the non-VAT-subject item to the VAT-subject item with a tax rate of 5%.

Appreciating the impact of this amendment on businesses, Mr. Phung Ha said that when the VAT Law is amended, businesses will have better opportunities to capture the market as the cost of domestic fertilizers decreases, increasing their competitiveness with imported fertilizers, as imported fertilizers will also be subject to VAT.

In addition, this is also an important motivation for businesses to invest in building new-generation, high-tech fertilizer production lines with better quality and more environmentally friendly, contributing to reducing input costs.

For farmers, the cost of domestically produced fertilizers will decrease as all input VAT is deductible. Farmers will benefit in the long run when domestic fertilizer businesses produce stably and efficiently, enabling them to lower costs and reduce selling prices to farmers.

"For the State, if the VAT rate is applied to fertilizers, imported fertilizers will also be subject to VAT and the state budget will collect all of this revenue. Applying VAT will improve the production and business efficiency of domestic enterprises and will contribute to the state budget from corporate income tax," Mr. Phung Ha affirmed.