Ministry drafts amendments to increase VAT management

A consumer shops at a supermarket in HCM City. It is necessary to amend the Law on VAT which has shown limitations 15 years after being put into force. — VNA/VNS Photo Mỹ Phương

HÀ NỘI — The Ministry of Finance is raising a draft amendment to the Law on Value Added Tax (VAT) for public comment, which aims to remove overlaps and inconsistencies in the VAT legal framework to facilitate its enforcement.

The ministry said that the existing VAT regulations have shown limitations 15 years after being put into force.

First, there are 26 categories of goods and services not subject to VAT, meaning that they are not eligible for input VAT deductions, which results in high production cost and selling prices and affects enterprises in the supply chain.

Second, three VAT rates are existing – zero, five and 10 per cent – which is not appropriate to categories of products and services, nor consistent to the orientation of reforming the tax system towards a common tax rate. As many as 14 categories remain subject to a 5 per cent VAT rate while determining tax rates based on their intended use causes problems for both tax authorities and payers.

The existing VAT regulations on real estate business still cause different translations between tax management authorities and payers.

Regulations on input VAT deductions also need to be tightened to prevent tax fraud, the ministry said.

Specifically, it is necessary to amend the regulation towards facilitating tax refunds. For investment projects, the tax refund regulations would be amended to encourage and facilitate investment, and promote technology innovations which would help improve labour productivity and competitiveness of enterprises.

Notable, in the latest draft, the ministry proposed that individuals and business households with revenues from VNĐ150 million per year will have to pay VAT tax at VNĐ50 million higher than the existing level.

The proposal was raised on the basis that CPI increased significantly since the amended Law on VAT 2013, which replaced the 2008 law, came into force from the beginning of 2014.

The change will not bring any increases in compliance cost and administrative procedures, the ministry said. According to the General Statistics Office, there are about 5.5 million business households who contribute around 30 per cent of GDP every year.

To promote border economic development, under the ministry draft, goods exchanges between residents living along border areas which are not subject to import tax will not be subject to VAT.

In the draft, three groups of products would not be exempt from VAT including: imported-then-exported tobacco, alcohol and beer; petrol, oil and automobiles sold in non-tariff areas; and goods and services not registered in non-tariff areas.

The ministry said that the VAT law will be amended to expand the tax base, ensure transparency and eligibility, increase tax management efficiency, prevent tax avoidance and evasion, and ensure stable revenue to the State budget.

For many years, VAT accounted for more than 20 per cent of budget revenue.

Việt Nam has extended the two per cent VAT reduction policy till the end of June this year in the context of difficult economy.

The VAT reduction policy started from early 2022 as a measure to promote post-pandemic growth. — VNS