Government proposes continued VAT cut in 2024 to stimulate consumption

In a draft resolution submitted to the current legislature session, the Government proposed continuing slashing the VAT placed on products and services subject to the 10% tax rate to 8% ahead in the first six months of 2024.

The VAT reduction will apply to almost all groups of products and services, except for telecommunications, information technology, financial activities, banking, securities, insurance, real estate transactions, metal production and production of prefabricated metal products, coal mining, refined petroleum, production of chemicals and chemical products, along with goods and services subject to special consumption tax.

Additional VAT reduction is needed, says the government

Presenting the draft resolution at the current legislative sitting, Finance Minister Ho Duc Phoc pointed out that the COVID-19 pandemic has caused severe and lasting consequences to all socio-economic activities, along with the profound impact of climate change and natural disasters.

The national economy has been enduring great difficulties and challenges, with the majority of industries being seriously impacted, said the Minister.

According to the financial official, the Government has introduced a range of solutions aimed at supporting businesses and people, and these policies have brought about initial encouraging results.

Following a long period of resistance to the pandemic, domestic businesses are in the process of recovery, meaning there are plenty of difficulties ahead, not to mention unpredictable global market fluctuations which require financial policy solutions capable of promoting aggregate domestic consumption demand, said Minister Phoc.

Slashing the VAT rate would therefore help reduce costs and selling prices of goods and services, contributing to promoting production and business, maintaining jobs for workers, and stabilising the macroeconomy and economic recovery in 2024, he said.

If the draft resolution is approved, he said that the State budget revenue will be reduced by approximately VND25 trillion during the course of six months.

Heated debate

The Government’s proposal sparked off a heated debate at the legislature’s year-end sitting.

Deputy Nguyen Duy Thanh of Ca Mau province said the proposal to reduce the VAT by 2% is consistent with practices in 2022 and 2023, meaning it should be extended for the coming months.

“The NA consider continuing to reduce the VAT for the whole year 2024, because this is a feasible and effective solution in the support policy applied in recent years,” he suggested.

Deputy Nguyen Quang Huan of Binh Duong province asked the Government to clarify the impact of the VAT cut on cost reduction and consumption stimulation.

“People will benefit from the tax cut but they can also be indirectly impacted later when the State budget revenue is not guaranteed, and socio-economic development plans will be affected… We cannot reduce taxes forever,” he said.

Deputy Nguyen Thi Viet Nga of Hai Duong province asked the Government to analyse the impact of the policy on the goal of maintaining macroeconomic stability and promoting economic recovery and growth.

The female deputy pointed out that there is no solid basis to confirm that the VAT cut has contributed positively to creating jobs for workers during the recent pandemic. She also proposed that the Government clearly assess how tax reduction will impact local budgets and if this is the reason some economic targets for 2023, especially the GDP target, have not been met.

The National Assembly in its mid-year session in June approved a resolution on the VAT reduction by 2% from July to December 2023 in an effort to reboot the economy and stimulate consumption.