What is proposal to reduce VAT by 2% from July 1, 2023 in Vietnam? Who will receive VAT reduction in the near future in Vietnam?

What is proposal to reduce VAT by 2% from July 1, 2023 in Vietnam?

According to in Clause 2, Article 1 of the Draft Decree stipulating the 2% value-added tax reduction policy, the 2% VAT reduction is stipulated as follows:

2. VAT reduction rates

a) Business establishments that pay VAT using the credit-invoice method shall pay 8% VAT on the goods and services specified in Clause 1 of this Article.

b) Business establishments (including household businesses and individual businesses) that pay VAT using the direct method (as a percentage (%) on revenue) shall be eligible for 20% reduction in the rate (%) used as the basis for calculating VAT when issuing invoices for the goods and services eligible for VAT reduction specified in Clause 1 of this Article.

Who will receive VAT reduction in the near future in Vietnam?

In Clause 1, Article 1 of the Draft Decree stipulating the 2% value-added tax reduction policy as follows:

1. VAT on goods and services that are currently subject to 10% VAT shall be reduced, except the following goods and services:

a) Telecommunication, financial activities, banking activities, securities, insurance, trading of real estate, metal and precast metal products, mining products (excluding coal mining), coke mining, refined oil, chemical products. Further details are provided in Appendix I enclosed herewith.

b) Goods and services subject to excise tax. Further details are provided in Appendix II enclosed herewith.

c) Information technology products and services as prescribed in the Law on information technology.  Further details are provided in Appendix III enclosed herewith.

d) VAT on goods and services of a specific type prescribed in Clause 1 of this Article shall be reduced consistently at all stages, including import, production, processing and trading.  Coal products mined for sale (including coal products mined and then washed, sieved and classified under a closed process before they are sold) are eligible for VAT reduction. Coal products in Appendix I enclosed herewith are not eligible for VAT reduction at any stages other than the mining stage.

Coal products produced under a closed process of economic corporations or groups shall be also eligible for VAT reduction.

In case any of the goods and services in Appendixes I, II and III enclosed herewith is not subject to VAT or is subject to 5% VAT in accordance with the Law on value-added tax, VAT on that good or service shall be paid in accordance with the Law on value-added tax and shall not be reduced.

Who is subject to the 10% value added tax in Vietnam?

Article 11 of Circular 219/2013/TT-BTC stipulates that goods and services are subject to the 10% value added tax rate as follows:

Tax rate of 10%

10% tax shall be levied on the goods and services that are not mentioned in Article 4, Article 9 and Article 10 of this Circular.

The rates of VAT mentioned in Article 10 and Article 11 shall be uniformly applied to the each type of goods and services, whether they are imported, manufactured, processed, or traded.

Example 50: 10% tax is levied on apparel. That means the tax rate is always 10% whether such apparel is imported manufactured, processed, or traded.

VAT on the products made of recycled wastes and scrap is the same as VAT on the wastes and scrap when they are sold.

If a taxpayer sells various goods and services that are subject to various rates of VAT, they must be sorted by VAT rates. Otherwise, the highest rate of VAT among which shall apply.

If the rate of VAT in the preferential import tariff schedule is found not conformable with this Circular, this Circular shall apply. If different rates of VAT are applied to the same kind of goods that are imported or manufactured in Vietnam, the local tax authority and customs authority must send a report to the Ministry of Finance for guidance.

Thus, the goods and services currently subject to 10% value added tax are goods and services that are not subject to value added tax, 0% tax rate and 5% tax rate in Vietnam. 

The taxable value-added tax rates of 10% are applied uniformly to each type of goods and services at the stages of import, production, processing or commercial business in Vietnam.

What are proceduresfor implementing VAT reduction in Vietnam?

In Clause 3, Article 1 of the Draft Decree stipulating the 2% value-added tax reduction policy as follows:

3. VAT reduction procedures

a) When issuing VAT invoices for goods and services eligible for VAT reduction, the business establishments specified in Point a Clause 2 of this Article shall write “8%” on the “VAT rate” line, VAT amount payable, and total amount payable by the buyer on the issued invoice. The good seller or service provider shall declare output VAT and the good buyer or service user shall declare and deduct input VAT according to the VAT amount written on the VAT invoice.

b) When issuing sales invoices for goods and services eligible for VAT reduction, the business establishments specified in Point b Clause 2 of this Article shall write the full amount of the good or service before reduction in the "Thành tiền" ("Amount") column, the amount payable after reduction (by 20% of the rate (%) on revenue) on the “Cộng tiền hàng hóa, dịch vụ” ("Total amount") line, and the note “đã giảm... (số tiền) tương ứng 20% mức tỷ lệ % để tính thuế giá trị gia tăng theo Nghị quyết số 101/2023/QH15” ("an amount of......., equivalent to 20% of the rate (%) used as the basis for calculating VAT, is reduced according to the Resolution No. 101/2023/QH15”) on the issued invoice.

Note: The draft Decree stipulating the 2% value-added tax reduction policy is still being consulted and has not yet taken effect.

Best regards!