Vietnam Extends VAT Cut Until 2024

Posted by Written by Giulia Interesse Reading Time: 3 minutes

Vietnamese authorities have extended the two percent reduction in value-added tax (VAT) on specific goods and services, according to Decree 72/2024, issued on June 30, 2024. This extension keeps the VAT rate at 8 percent from July 1, 2024, through December 31, 2024. The original VAT reduction, established by Decree 94/2023/ND-CP in December 2023, was initially in effect from January 1 to June 30.

The range of goods and services eligible for the reduced VAT rate remains unchanged, covering sectors such as importation, manufacturing, processing, and trading. However, certain industries, including telecommunications, finance, IT, banking, and real estate, among others, do not qualify for this 2 percent VAT reduction.

Background

In late May 2024, the Vietnamese government sanctioned a draft proposal to continue the VAT reduction from 10 percent to 8 percent on certain goods and services, effective from July 1 until the end of 2024.

This proposal was subsequently submitted to the National Assembly, seeking approval to maintain the 2 percent VAT reduction on specific categories of goods and services for the second half of 2024.

What does the VAT cut involve?

On December 28, 2023, Decree 94/2023/ND-CP was issued following Resolution No. 110/2023/QH15, introducing a 2 percent VAT reduction for goods and services normally taxed at 10 percent, with certain exceptions. The decree included a detailed list of excluded goods and services, specifying product and HS codes. This reduction was effective from January 1, 2024, to June 30, 2024.

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The latest notification from the Vietnamese government, Decree 72/2024, extends this VAT reduction to the end of 2024 without expanding the list of eligible goods and services.

According to the decree, goods and services typically subject to a 10 percent VAT rate will continue to benefit from a 2 percent reduction (resulting in an 8 percent tax rate) until the end of 2024.

However, key exceptions include:

  • Telecommunications, financial activities, banking, securities, insurance, real estate, metals, prefabricated metal products, mining products (excluding coal), coke, refined petroleum, and chemical products;
  • Goods and services subject to Special Consumption Tax; and
  • Information technology.

The VAT reduction applies uniformly across all stages — importation, production, processing, and commercial business.

Enterprises with goods and services eligible for the VAT reduction must declare using Form No. 01 in Appendix IV along with their VAT declaration.

The decree is effective from July 1, 2024, to December 31, 2024.

The VAT reduction will be applied uniformly across all stages—importation, manufacturing, processing, and trading—for eligible goods and services.

What is the expected impact of the VAT reduction?

Since its introduction on January 1, 2024, the 2 percent VAT reduction has had a notable impact on reducing input costs for businesses across diverse sectors in Vietnam. This tax relief has stimulated domestic consumption, bolstered economic growth, and helped maintain macroeconomic stability despite global challenges such as slow economic recovery in major trading partners and supply chain disruptions.

According to market analysts, the VAT reduction has played a crucial role in stabilizing production and business operations, which in turn has led to job creation and enhanced living standards. By lowering production costs, businesses have been able to price their products more competitively, thus encouraging increased consumer spending. This policy has been particularly advantageous for the retail, automotive, and manufacturing sectors, which have seen significant benefits from the reduced tax burden.

Implications for businesses

The extension of the 2 percent VAT reduction in Vietnam through Decree 72/2024 significantly impacts businesses by lowering operational costs and enhancing competitiveness.

For companies involved in the importation, manufacturing, processing, and trading of eligible goods, this tax relief translates to immediate financial savings, allowing them to reinvest in their operations, potentially expand their workforce, and offer products at more competitive prices.

This reduction also aids in stabilizing production and business activities, which is crucial for maintaining economic growth amid global uncertainties. By decreasing the cost burden, businesses can boost domestic consumption, drive higher sales volumes, and ultimately contribute to a more robust and resilient economy. The policy is particularly advantageous for sectors such as retail, automotive, and manufacturing, where reduced costs can directly translate to lower prices for consumers, stimulating demand and fostering a more dynamic market environment.

Businesses are advised to keep monitoring legislative developments in Vietnam and plan for the associated tax reporting and compliance requirements.

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