Introduction

In 2022 and 2023, due to severe impact of COVID-19, the Vietnamese government issued Resolution 43/2022/QH15, decided to reduce the Value-added Tax (VAT) rate from 10% to 8%. These adjustments, which occurred during the last ten months of 2022 and the latter half of 2023, had a notably positive impact on both consumers and businesses in the market, including alleviating financial burdens, maintaining market efficiency, and spurring development momentum. Once again in a move to bolster economic prospects, On November 29, 2023, the National Assembly approved a Resolution during the 6th Session of the 15th National Assembly. Point 10 of the Resolution entails a 2% reduction in value-added tax rates for specified groups of goods and services, as outlined in Resolution No. 43/2022/QH15 of the National Assembly. This resolution focuses on fiscal and monetary policies to support the socio-economic recovery and development program from January 1, 2024, to June 30, 2024.

Challenges Arise in Determining Items Eligible for 8% VAT Category

This tax reduction excludes specific categories of goods and services, such as telecommunications, information technology, financial activities, banking, securities, insurance, real estate, metals, prefabricated metal products, non-coal mining products, coke, refined petroleum, chemical products, and items subject to special consumption tax.

The main issue is the uncertainty surrounding which items fall under the 8% VAT category and which do not. In practice, businesses are required to cross-reference the industry code for goods and services within the Vietnamese product industry system and compare it with the customs authority's import and export tax list, as well as the appendix list of goods and services subject to special consumption tax, which are not eligible for VAT reduction1. In certain instances, determining VAT rates for input materials and output products in manufacturing facilities presents challenges2.

This situation highlights the cumbersome and inconsistent procedures that businesses must navigate, resulting in delays and time-consuming operations for the companies.

Accordingly, principles for determining eligibility for the 8% VAT reduction include the following guidelines for enterprises:

• The reduction applies to groups of goods and services currently taxed at 10%, excluding those listed in Appendices I, II, and III of Decree 44/2023/ND-CP.

• Enterprises can use business lines codes and HS codes (for imported goods) to cross-reference with the appendices to ascertain if their goods and services qualify for the tax reduction.

• Goods and services are not subject to VAT or with a VAT rate of 0%, 5% are not eligible for the reduction.

• The VAT reduction is applied uniformly across all stages, including import, production, processing, and commercial business. This reduction only applies to coal products’ mining and selling stages, excluding other stages from the tax reduction.

How to determine which goods and/or services are eligible for VAT reduction

In particular, the determination of goods and services eligible for VAT reduction is as follows:

For goods and services that enterprises are trading

• Step 1: Enterprises look up their business line codes on the National Business Registration Portal and base on these to figure out their goods and/or services’ codes; or they may manually search for those goods and/or services code in Decision 43/2018/QD-TTg.

• Step 2: After finding the goods and/or services code, enterprises may compare them with Appendix I, II, III of Decree 44/2023/ND-CP which lists goods and services that are not eligible for VAT reduction.

• Step 3: If the goods and/or services is not on this list under Appendix I, II, III of Decree 44/2023/ND-CP, the enterprises may issue an invoice with a VAT rate of 8%.

For goods at the import stage

• Step 1: Enterprises look up their goods’ code on the website of the General Department of Customs by entering its HS code (minimum 04 digits) or keywords relating to the goods.

• Step 2: Compare the HS code with column (10) under Appendix I, II, III of Decree 44/2023/ND-CP to determine if the goods are eligible for VAT deduction.

In brief, the reduction of VAT from 10% to 8% in recent years has been a successful measure, providing relief and encouraging economic growth. However, enterprises encounter challenges in implementing the task, particularly in identifying items and services eligible for VAT reduction.

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Endnotes:

Le Thanh et al., 2023, “Giảm thuế VAT đủ mạnh, nới thuế thu nhập cá nhân để tăng tốc phục hồi kinh tế”, Tuoi Tre Online, published on October 14th 2023

Thanh Chung, 2023, “Đề xuất giảm thuế VAT đến hết năm 2024, mở rộng thêm đối tượng”, Tuoi Tre Online, published on June 8th 2023