2% VAT reduction should be extended till the end of 2024

That is the opinion of economic expert Associate Professor Dinh Trong Thinh on the VAT tax decrease, which has piqued the interest of the business community.

As a result, on May 6, 2023, the Government published Resolution 72 on the draft resolution of the National Assembly for decreasing value-added tax (VAT). As a result, the Government agreed to the Ministry of Finance's proposal to lower VAT from 10% to 8% for products and services subject to a 10% tax rate, and then submitted it to the National Assembly for approval. The implementation period runs from July 1 until December 31, 2018.

Many individuals feel that the idea satisfies people's and companies' needs and expectations, but if it had been presented earlier, it would have been a proactive step rather than a situational one. Unlike other business-focused measures, lowering VAT benefits both firms and individuals, encouraging spending and strengthening the economy.

Mr. Dau Anh Tuan, Deputy Secretary General and Head of the Legal Department at the Vietnam Chamber of Commerce and Industry (VCCI), feels that companies and individuals are still suffering several challenges as a result of the COVID-19 outbreak. At the same time, the risk of inflation remains, and lowering VAT is a beneficial way to lessen the risk of inflation. In particular, the efficacy of this strategy is highly rated; businesses gain instantly without having to go through complicated procedures or wait for document approval.

According to Mr. Dau Anh Tuan, among the economic assistance packages, the 2% VAT reduction strategy is the most effective, since it can be implemented fast and "directly benefit businesses and people."

The VAT cut, in particular, occurs in the context of Vietnam's budget income in 2022 being pretty excellent, attaining and exceeding reasonably positive spending, so it does not put a big strain on the budget, but rather has a revenue-increase impact. This implies that the immediate tax cut would lower budget income by tens of thousands of billion VND, but it will promote output and spending, and individuals will be able to pay more taxes as a result.

It is worth mentioning that, while many firms and professionals appreciate the decrease of VAT to encourage spending, they also consider that the implementation of the 2% VAT reduction strategy for only six months was insufficient and had little influence on the economy.

According to a representative of a retail system in Ho Chi Minh City, it takes time to prepare for changes in invoicing, pricing, and working with supply units in order to apply the change in VAT rates. "The remaining six months of the year are far too brief to stimulate consumer spending." Because the economic situation is expected to continue challenging, the policy should be implemented for at least one year and extended until June 2024, if feasible, to the end of 2024," a representative of the retail system advised.

Similarly, economic analyst Associate Professor Dinh Trong Thinh says the National Assembly might contemplate early passage of a resolution to decrease VAT in May and implement it in June, one month sooner than anticipated (July 1). According to Mr. Thinh, the policy will likewise take time to become a reality. As a result, it is important to extend the period for implementing the VAT decrease, maybe for 12 months, in order to deliver tangible advantages in terms of assisting people, companies, and increasing consumption and output.

"There must be sufficient time to tell residents and companies about the VAT cut. For enterprises to have proper production and business planning, there must be somewhat consistent time. As a result, the VAT reduction strategy might be considered for a year or prolonged until the end of 2024 to guarantee that the program achieves true efficiency and increases consumption and output," Mr. Thinh shared.