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Under the direction of the National Assembly Standing Committee, the Government has just submitted a proposal for a new plan for reducing VAT. Photo: H.Anh

Narrowing the beneficiaries

Receiving the direction of the Standing Committee of the National Assembly, in the latest report, the Government proposes to continue implementing the 2% VAT reduction policy specified at Point a, Clause 1.1, Article 3 of Resolution No. 43/2022/QH15 on policies.

Fiscal and monetary support for the Socio-economic Recovery and Development Program in the period from July 1, 2023 to the end of December 31, 2023 are as follows: 2% value-added tax rate reduction, applicable to groups of goods and services currently applying the tax rate of 10% (remaining 8%).

The tax reduction will not apply to groups of goods such as telecommunications, information technology, finance, banking, securities, insurance, real estate trading, metals, prefabricated metal products, mining products, refined petroleum, chemical products and items subject to excise tax.

According to the Government, following this plan is to ensure the right target of stimulating consumption demand, in line with the current economic context, thereby promoting production and business activities to recover and develop to contribute to the development of the economy and the state budget as well as the economy.

Previously, at the meeting to comment on the draft VAT reduction resolution on May 13, 2023, there was concern that the expansion of the tax reduction policy would negatively affect budget revenue while the state budget revenue of 2023 is difficult, aggregate demand is weak, business health declines, the Standing Committee of the National Assembly has directed to continue implementing the policy of reducing VAT 2% according to the policy specified in Resolution No. 43/2022/QH15 instead of extended to apply to all types of goods and services as proposed by the Government.

The Standing Committee of the National Assembly also requested not to reduce the budget revenue according to the approved estimate and not to increase the budget deficit in 2023.

According to the Government, in 2022, the 2% VAT reduction (except for industries such as telecommunications, banking, insurance, securities, real estate, etc.) has supported businesses and people with about VND 44,500 billion, contributing to reducing the cost of goods and services, promoting production and business, creating more jobs for workers, thereby contributing to stimulating consumption demand and creating more revenue for the state budget.

The implementation of VAT reduction under Resolution 43 has indirectly stimulated domestic consumption demand, the total retail sales of consumer goods and services in 2022 increased by 19.8% over the previous year. Domestic VAT collection did not decrease but increased by 10% over the same period.

The budget is expected to reduce revenue by VND 24,000 billion

According to the Government, in 2023, the growth of the first quarter will increase by 3.32%, much lower than the set targets and scenarios (5.6%). The main contributors to growth are the service sector and agro-forestry-fishery (agriculture), while industry, which is the driving force for growth but it declines.

Along with that, many businesses have laid off a large number of workers due to reduced or no orders, making life more difficult for workers.

The Government also said that many countries are also applying tax solutions to solve direct cash flow difficulties for businesses such as extending the tax payment deadline, reducing VAT, corporate income tax, and reducing taxes on land.

In the context of forecasting complicated developments in the world and in the country, difficulties with the economy and businesses increase, creating great pressure on macroeconomic stability, recovery and development of many industries and fields.

The Government affirmed that it is necessary to continue reducing VAT by 2% in addition to the solutions that have been implemented in 2023, in accordance with the current economic context to promptly support people and businesses; thereby promoting production and business activities to soon recover and develop to contribute back to the state budget as well as the economy.

It is estimated that if this tax reduction is applied in the last six months of the year, it is expected that the budget will reduce revenue by about VND 24,000 billion (a decrease of VND 11,000 billion compared to the reduction of VND 35,000 billion in the tax reduction plan for all goods, service as previously suggested).

For the state budget revenue in 2023, it is expected to decrease by VND20 trillion because the VAT payable in December 2023 is paid in January 2024.

In order to overcome and offset the impacts on state budget revenue in the short term as well as ensure the initiative in managing state budget estimates, the Government will direct the Ministry of Finance to coordinate with relevant ministries, branches and localities to focus on directing the implementation and effective implementation of tax laws; continue to reform and modernize the tax system, simplify tax administrative procedures; at the same time drastically manage the state budget revenue, focusing on timely and effective implementation of groups of solutions for revenue management, combating revenue loss, transfer pricing, and tax evasion.

Regarding this issue, on the afternoon of May 16, 2023, the Finance and Budget Committee of the National Assembly held a meeting to examine and comment on the Government's report on continuing to implement the value-added tax reduction policy increase of 2% according to Resolution No. 43/2022/QH15.

Discussing at the meeting, the delegates expressed their approval for the continued implementation of the 2% VAT reduction policy as prescribed in the National Assembly's Resolution No. 43/2022/QH15 dated January 11, 2022 on financial and monetary policy, supporting The Socio-Economic Development and Recovery Program as proposed by the Government to continue to support the people and the business sector to recover and develop, especially as there are signs of decline and production and business areas are facing many difficulties at present.

However, some suggested considering continuing to implement the VAT reduction policy at the present time because of concerns about the effectiveness of the policy and concerns about the impact of revenue reduction in the context of the task of 2023 is very difficult.

Government proposes National Assembly consider 2% reduction in VAT in coming agenda

In addition, the delegates proposed to have a specific impact assessment of the expected impacts of the policy on the ability to stimulate consumer demand and promote production and business activities in the second half of 2023 as set out.