Maintaining VAT tax incentives to support businesses

In the morning session, the National Assembly Standing Committee made comments on draft amendments to the Law on Value Added Tax (VAT), including tax rates. Currently VAT in Vietnam is set at three levels: 0%, 5% (with preferential items) and 10% (common).

According to the tax system reform strategy in the period 2011 - 2020, in the coming years, the groups of items that enjoy preferential tax rates of 0% and 5% will be reduced and finally applying a single tax rate in 2020.

However, in the current difficult conditions, to facilitate production support, the National Assembly deputies agreed to temporarily not reduce the number of commodity groups that enjoy preferential tax rates of 0% and 5%, especially for goods and services that are inputs in the agricultural sector and essential commodities.

The compilation board said they had received several proposals to reduce the general tax rate (10%) to support production. However, Deputy Minister of Finance - Vu Thi Mai – said that the common rate would not change because the VAT rate in Vietnam is quite low.

She added that 88/112 countries apply the common rate of over 12%, 24 others have common tax rate of over 10%. Only Vietnam and some Southeast Asian countries such as Laos, Cambodia and Indonesia still maintain the 10% of VAT.

The draft law raises the minimum amount of input tax to be refunded for investment and exports from VND200 million ($10,000) to VND500 million ($25,000). The majority opinion also agreed with this but the Chair of the National Assembly’s Committee of Finance and Budget, Phung Quoc Hien, said that the conditions for VAT refund must be stricter to prevent businesses from tanking advantage of loopholes in the tax refund, causing losses to the state budget.

In the discussion, many delegates said that the draft amendment is unclear and there are too many terms that are "assigned to the Government" rather than being clearly stated in the Law.

Chairman of the National Assembly’s Judiciary Committee - Nguyen Van Hien - said: "The draft mentions the amendment to seven articles but up to six articles are “being guided by the Government."

Chairman of the National Assembly’s Law Committee - Phan Trung Ly - said that the amended articles in the VAT Law are very important because they are related to the rights and obligations of citizens as well as have the impacts on budget revenues.

"However, the content is assigned to the Government, so what does the National Assembly decide," questioned Ly, who also asked the Finance Ministry to more carefully analyze the fact and perfect the bill.

A representative of the National Assembly’s Economic Committee, Mr. Nguyen Van Giau, added that the tax policies are sensitive to the society so regulations must be clear, stable to be put into law. "It is inappropriate if all just are handed to the government’s decision," Mr. Giau said.

The previous strategic objective of the tax sector is to increase the proportion of directly-collected taxes and reduce the proportion of indirectly-collected taxes.

The Chairman of the National Assembly’s Finance and Budget Committee - Phung Quoc Hien - said that this is the right direction because the direct taxes imposed on income so it is fair while the indirect taxes levied on consumers.

As expected by the Government, the amended Law on Value Added Tax will take effect from July 1, 2014.

However, National Assembly Chairman Nguyen Sinh Hung said that it is too late and does not immediately remove the difficulties for the enterprises. Therefore, the representatives of the National Assembly’s Finance and Budget Committee and members of the National Assembly Standing Committee agreed that the law enforcement will begin from January 1, 2014.