Amendments to the Value-Added Tax Law passed: Fertilizers to be taxed at 5%

The National Assembly has passed the Law on VAT (amended). Photo: National Assembly

Fertilizers subject to 5% VAT: A balanced approach

One of the most notable changes in the revised VAT Law is the decision to apply a 5% VAT rate to fertilizers, ores for fertilizer production, pesticides, and animal growth stimulants as specified by law.

During the session, Chairman of the Finance and Budget Committee Le Quang Manh presented the report on clarifications, feedback, and revisions to the draft law. The report revealed diverse opinions:

Many deputies supported the 5% VAT proposal for fertilizers. However, some proposed maintaining the current exemption, while others suggested a 0%, 1%, or 2% VAT rate.

There were concerns were raised about the potential impact on farmers, agricultural production, and fisheries.

There were fears of enterprises exploiting the policy to inflate prices, thereby affecting farmers.

The report explained that a 0% VAT rate would benefit both domestic fertilizer manufacturers and importers, as both would receive VAT refunds on input taxes and would not have to pay output VAT. However, this approach would require the State to allocate funds annually to refund taxes to enterprises, posing fiscal challenges.

Moreover, applying a 0% VAT rate would contradict the principle of VAT policy, where the 0% rate is reserved for exports and not for domestic consumption.

Such a policy would disrupt the neutrality of the tax system, set a negative precedent, and be unfair to other industries.

The drafting agency also noted that introducing a 2% VAT rate would necessitate redesigning the VAT law, including new provisions for tax refunds. This, coupled with the goal of reducing the number of VAT rates in the tax reform agenda, led to the rejection of 1% or 2% rates for fertilizers.

Following consultations, the Standing Committee of the National Assembly provided a detailed impact assessment in Report No. 1035/BC-UBTVQH15, dated October 28, 2024, evaluating the shift from VAT exemption to a 5% tax rate for fertilizers. Supporting this approach, the Government issued Official Document No. 692/CP-PL, which provided specific data to justify the change.

On November 26, 2024, the National Assembly Secretariat presented two options for deputies to vote on: maintaining the current exemption or imposing a 5% VAT rate. The results showed that 72.67% of deputies supported the proposal by the Standing Committee and the Government to impose a 5% VAT rate on fertilizers, agricultural machinery, equipment, and fishing vessels.

National Assembly deputies vote. Photo: National Assembly

Ending the effectiveness of Decision 78

Another key issue discussed was the termination of Decision No. 78/2010/QĐ-TTg, which exempts small-value goods imported through e-commerce platforms from taxes. The Standing Committee highlighted concerns over the increasing presence of low-value goods sold by foreign e-commerce platforms in Vietnam, which are often priced extremely competitively.

Recognizing the urgency, the Standing Committee commended the Government for proposing amendments in both the revised VAT Law and the draft Tax Administration Law to enhance tax collection on e-commerce transactions.

However, the Standing Committee noted that as long as Decision No. 78 remains effective, the new VAT and Tax Administration Law amendments cannot take full effect. Therefore, the termination of Decision No. 78 will be included in the resolution of the 8th session.

The revised VAT Law also introduces changes to the scope of exemptions, including goods and services from individuals and households with annual revenues of VND 200 million or less.

Currently, the VAT exemption threshold is VND 100 million/year. According to calculations by the Ministry of Finance, if raising the threshold to VND 200 million/year, it would reduce state revenue by approximately VND 2.63 trillion annually; if a threshold of VND 300 million/year, it would result in a reduction of VND 6.38 trillion.

Therefore, the VND 200 million/year threshold was chosen as a balanced approach, aligning with GDP and CPI growth rates since 2013.