The Ministry of Finance of Vietnam, in its pursuit to stimulate economic recovery and support taxpayers facing ongoing challenges, has issued Official Dispatch No. 11239/BTC-CST. The dispatch seeks opinions on the reduction of the Value Added Tax (VAT) in the first half of 2024. The proposal suggests maintaining the existing 2% reduction in VAT in Vietnam for this period. This tax policy aims to provide relief to enterprises and individuals as they navigate persisting economic uncertainties.

The Ministry of Finance has consistently implemented a 2% reduction in the VAT rate for several groups of goods and services with a 10% VAT rate throughout 2022 and 2023. In light of this successful implementation and recognizing the need for continued support, the Ministry has communicated its intentions to the Prime Minister. This proposal aligns with Resolution No. 43/2022/QH15 and Resolution No. 101/2023/QH15.

The 2% reduction in VAT will apply to groups of goods and services currently subject to a 10% VAT rate, effectively lowering it to 8%. Notably, some sectors, including telecommunications, information technology, financial activities, banking, securities, insurance, real estate business, metal production, production of prefabricated metal products, production of chemicals and chemical products, and other goods and services subject to special consumption tax, will remain unaffected by this tax reduction.

Duration and Future Considerations

The proposed VAT reduction will be in effect from January 1, 2024, to June 30, 2024. The National Assembly Standing Committee will assess the need for further VAT reductions beyond this period based on the economic situation, business conditions, and the welfare of the public. The committee will present its findings and recommendations to the National Assembly at its nearest session.

Impact on State Budget Revenue

The Ministry of Finance anticipates that the 2% VAT reduction in the first half of 2024 will lead to a reduction in state budget revenue by approximately 25 trillion VND, which equates to around 4.175 trillion VND per month. This decrease in revenue includes both domestic and import revenue, estimated at 2,700 billion VND and 1,475 billion VND, respectively. These figures are based on projected domestic revenue reductions during the latter half of 2023, assuming a 6-6.5% GDP growth rate in 2024 and a 5-7% growth rate in state budget revenue for the same year.

To mitigate these short-term revenue losses and ensure effective management of state budget estimates, the Ministry of Finance will collaborate with relevant ministries, branches, and local authorities. Their strategy will focus on improving tax law enforcement, modernizing the tax system, streamlining administrative procedures, and maintaining a rigorous approach to state budget revenue management. This will encompass the timely implementation of revenue management solutions, addressing issues such as revenue loss, transfer pricing, and tax evasion.

Stimulating Consumer Demand to Support Economic Recovery

The government implemented financial policies to stabilize production, support businesses and individuals, and restore normalcy. These measures maintained macroeconomic stability and fostered economic recovery. Despite unprecedented economic support since 2020, the landscape remains challenging, with many businesses adversely affected, leading to temporary or permanent closures. 

The Ministry of Finance is committed to supporting businesses and individuals in these difficult times. The proposed 2% VAT reduction in H1 2024 is part of a comprehensive strategy to stimulate the economy and ensure its continued recovery. By continually assessing and adapting to the evolving socio-economic landscape, the Ministry aims to navigate uncertainties and foster growth and stability in the upcoming year.

At PHC Advisory, we can offer you full support on matters regarding doing business in Vietnam, or any other issues your business may face. If you would like to know more about policies relevant to your business in Vietnam, please contact us at info@phcadvisory.com.

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