The VAT tax reduces to 8% from July 1, 2023

On the afternoon of June 24, 2023, the National Assembly passed a resolution during the 6th session of the 15th tenure, which included a 2% reduction in VAT, from 10% to 8%. This tax reduction currently applies only to the second half of 2023.

Prior to this, on June 1, 2023, during a discussion on reducing VAT, Mr. Tran Chi Cuong, Deputy Head of the delegation in charge of Da Nang city, proposed extending the tax reduction period until the end of 2024 to avoid implementing a policy for too short a period, which may not fully maximize its effectiveness and make it difficult for provinces and cities to balance tax revenue and expenditure. Ms. Mai Thi Phuong Hoa, Deputy Chairwoman of the Judicial Committee, also agreed, suggesting extending the 2% VAT reduction until the end of 2024, and even possibly until the end of 2025. However, Minister Ho Duc Phoc stated that the temporary measure applied for the last 6 months of 2023 is reasonable and suitable for budget balancing. This policy is primarily used to stimulate consumer demand and address immediate difficulties.

Therefore, the VAT tax will be reduced to 8%, but it will not apply to industries such as telecommunications, information technology, finance, banking, securities, insurance, real estate business, metals, precast metal products, mining products, refined petroleum products, chemical products, and goods subject to special consumption tax.

This exclusion also poses some difficulties in tax declaration. Businesses, tax authorities, and customs are concerned about determining whether a particular item is eligible for the tax reduction. Incorrect determinations could lead to disciplinary action and penalties in the future.

The government estimates a budget deficit of about 24,000 billion VND in the second half of this year due to the implementation of this tax reduction policy. Therefore, the Finance and Budget Committee proposes that the government provide more specific explanations on how to offset the reduced revenue and balance the budget in the second half of 2023.

Additionally, thanks to the reduction of VAT to 8%, individuals will save a certain amount of money on daily shopping expenses, which helps stimulate consumer demand. In the context of global economic difficulties where every company is considering cutting staff and reducing bonuses, this VAT reduction policy brightens the situation and lightens the burden for the people.

Unlike other types of taxes, VAT is a burden on both businesses and consumers. Therefore, when this tax is reduced, both businesses and individuals benefit. This policy directly reduces the selling prices of goods for end consumers. For businesses, goods are sold faster because people tend to buy more when they see lower prices, thus stimulating consumer demand.

However, in order for this policy to truly be effective, Ms. Pham Thi Thanh Xuan (Ho Chi Minh City University of Economics and Law) also expressed her viewpoint. She believes that there should be a stable nationwide pricing policy to avoid a situation where reducing taxes by one unit leads to a two-unit increase in prices. Along with that, expediting the processing of outstanding tax refund applications to release funds for businesses, and strengthening and speeding up communication efforts for consumers are also necessary to maximize the impact.