Vietnam: 2% VAT rate reduction receives go-ahead from government 2023

The Vietnamese government has recently approved the proposed VAT rate reduction plan. The Ministry of Finance submitted the proposal on 14 April 2023. 

One of the key objectives of the proposal is to lower the 10% value-added tax (VAT) rate by 2%. The reason for this is to provide a much-needed boost for businesses that are struggling to recover from various domestic and economic challenges. 

Here's everything you need to know about the proposed VAT reduction on goods and services and what to expect for the year ahead. 

An overview of the proposal

The MOF's proposal was submitted to Vietnam's prime minister on 14 April 2023. Soon after, Vietnam's Deputy Prime Minister, Le Minh Khai, agreed that the MOF should submit the proposal to the National Assembly and follow the relevant protocols for approval. 

Some significant and critical points were underlined in the MOF's proposal, which suggested a VAT reduction from 10% to 8%. This 2% reduction was indicated for several goods and services, granted that they are subject to the 10% VAT rate. 

The second reduced VAT rate

This is the second time Vietnam has introduced a VAT reduction policy from 10% to 8%. This policy was previously implemented in 2022, however, in December 2022, the rate was increased back to the initial rate of 10%. Less than six months later, the rate is now again expected to reduce back to 8%, following the approval of the National Assembly. 

There has been some cause for concern that the unpredictable timeline and short-term continuous reductions may have negative consequences on the economy and prove to be challenging from an administrative record perspective, considering the various fluctuations in such a short period. 

However, to ensure that the proposed plan effectively stimulates consumption demand and promotes production and business activities, in line with the current economic environment, the MoF has set an implementation period from policy issuance until 31 December 2023. 

In addition, the MOF has confirmed that it will work closely with the relevant agencies and localities to ensure the effective implementation of tax laws, to mitigate the impact on government revenue in the short term and maintain sound management of government budget estimates.

The MOF also aims to prioritize reforming and modernizing the current tax system. In addition, it's focusing its efforts on simplifying administrative procedures and proactively managing state budget revenues. 

What's next? 

Although the government has approved the proposal, it still needs to be reviewed and approved by the National Assembly. However, considering the government's support, the proposal will likely succeed. This could significantly boost consumer purchases upon implementation, allowing businesses to reap the additional income they need to expand. Once approved by the National Assembly, the VAT rate reduction would be applied until the end of 2023

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