Vietnam Government Extends 2% VAT Reduction on Specific Goods and Services till End of 2024

Vietnam officially extends 2 percent VAT reduction till the end of 2024

Vietnam has officially extended the value added tax (VAT) reduction from 10 percent to 8 percent until December 31, 2024, as outlined in Decree 94/2023/ND-CP in accordance with Resolution No. 110/2023/QH15. Under Resolution 142/2024/QH15, the Vietnamese Government issued Decree 72/2024 on June 30, providing guidelines for its implementation. This decree takes effect from July 1 and will remain in force until the end of 2024.

Background

On the morning of June 13, the National Assembly Standing Committee gave a favorable assessment of the draft resolution concerning an extension of the reduction in the VAT rate, which was submitted to the National Assembly for consideration during its 7th session of the 15th term.

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In late May 2024, the Vietnamese government approved a draft proposal aiming to extend the VAT reduction from 10 percent to 8 percent on selected goods and services from July 1 through the end of 2024. The government subsequently submitted the draft proposal to the National Assembly seeking approval to continue implementing this VAT reduction of 2 percent on specific categories of goods and services for the latter half of 2024.

Understanding the scope of the 2% VAT reduction

On December 28, 2023, Decree 94/2023/ND-CP was issued, in accordance with Resolution No. 110/2023/QH15, and implemented a 2 percent VAT reduction on goods and services that were taxed at 10 percent VAT, with certain exceptions. The Decree included a comprehensive list of goods and services excluded from the 2 percent VAT reduction, detailing specific product codes and HS codes. This was to be effective from January 1, 2024, to June 30, 2024.

The latest Vietnamese government notification (Decree 72/2024) applies this VAT reduction to the end of 2024 but does not expand the scope of goods and services eligible for the reduced tax rate.

Sectors excluded from the 2 percent VAT reduction are telecommunications, IT, finance, banking, insurance, real estate, metals, prefabricated metal products, refined petroleum, chemical products, and products and services subject to special consumption tax.

The VAT reduction will apply uniformly across all stages—importation, manufacturing, processing, and trading—for eligible goods and services. However, under mineral products, it excludes coal exploitation.

Tax reporting and compliance

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Companies using the deduction method for VAT declaration must indicate “8 percent” as the VAT rate on invoices for goods and services eligible for the reduced rate. In cases where goods or services are subject to different VAT rates, each rate must be clearly stated on the invoice.

If a seller issues VAT invoices for eligible goods or services at the normal VAT rate without applying the 2 percent reduction, both the seller and the buyer are responsible for adhering to invoicing regulations and adjusting output VAT and input VAT accordingly.

Goods and services eligible for the 2 percent VAT reduction must be declared on Form 01 prescribed in the draft Decree, which must accompany VAT returns upon submission.

Rationale behind the tax cut

Since its implementation on January 1, 2024, the 2 percent VAT cut has proven instrumental in alleviating input costs for businesses across various sectors in Vietnam. It has stimulated domestic consumption, bolstered economic growth, and supported macro-economic stability amid ongoing global uncertainties, including slow recovery in major trading partner economies and disruptions in global supply chains.

According to market watchers, the VAT reduction has directly contributed to stabilizing production and business activities, which in turn has led to job creation and improved living standards. By lowering production costs, businesses have been able to offer competitive prices, thereby further stimulating consumer spending. This policy has been particularly beneficial for sectors such as retail, automotive, and manufacturing.

Financial implications

According to the Ministry of Finance, the initial six-month VAT reduction resulted in a revenue loss of approximately VND 25 trillion (nearly US$994.7 million), as reported in Vietnamese media. With the proposed extension through the end of 2024, an additional reduction of about VND 24 trillion is anticipated, equivalent to approximately VND 4 trillion per month. This indicates the government’s commitment to supporting Vietnam’s economic recovery and growth.

Strategic considerations for businesses

For businesses in Vietnam, especially those in consumer-facing industries, the extended VAT reduction presents opportunities for strategic pricing and cost management. It is crucial to review pricing structures, supply chain dynamics, and financial planning strategies to maximize the benefits of this fiscal policy measure.

It is advisable for businesses to continuously monitor Vietnam legislative developments and plan for related tax reporting and compliance requirements.

Should you have any questions or require further clarification on how Vietnam’s tax policies may impact your business, please do not hesitate to contact us at vietnam@dezshira.com. We remain committed to assisting you in navigating the complexities of Vietnam’s fiscal policy and optimizing your tax strategy.

This article was originally published June 13, 2024. It was last updated July 1, 2024.

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