Vietnam's Ministry of Finance Proposes VAT Reduction to Bolster Economic Recovery

The Ministry of Finance has just presented a comprehensive report to the National Assembly, highlighting the impact of the 2% reduction in value-added tax (VAT).

This reduction, set under Resolution No. 110/2023/QH15 dated November 29, 2023, is aimed to alleviate economic strains exacerbated by the prolonged Covid-19 pandemic.

In light of the enduring repercussions of the pandemic, the Ministry underscores the necessity of ongoing fiscal measures to sustain businesses and individuals.

Over the period from 2020 to 2023, financial policies amounting to approximately 700 trillion VND (USD 27.66 billion) were deployed to alleviate financial burdens, including exemptions, reductions, and extensions of various taxes and fees.

Despite persistent challenges, recent statistics from the Ministry of Planning and Investment paint a cautiously optimistic picture. Key indicators such as GDP growth rate, consumer price index, and export-import turnover have shown positive trends.

However, the Ministry acknowledges that challenges persist, with many businesses still grappling with the aftermath of the pandemic.

The resilience of domestic enterprises is being tested as they navigate the path to recovery. The first quarter of 2024 witnessed a notable increase in business closures, with 73.9 thousand enterprises exiting the market—an uptick of 22.8% compared to the previous year. While certain sectors show signs of revival, the overall landscape remains fraught with difficulties.

Amidst a global economic landscape marred by uncertainty, international financial institutions offer cautious optimism regarding Vietnam's economic trajectory.

Forecasts from entities such as the Asian Development Bank (ADB) and the International Monetary Fund (IMF) suggest modest growth projections for 2024, albeit below targets set by the National Assembly.

The proposed reduction in VAT rates for the latter half of 2024 comes with significant implications for the state budget. The Ministry estimates a reduction in revenue by approximately 24 trillion VND (USD 947.19 million), necessitating careful deliberation on fiscal policy moving forward.

Balancing Economic Stimulus and Fiscal Responsibility

While acknowledging the revenue implications, the Ministry advocates for a balanced approach that prioritizes economic stimulus without compromising fiscal stability. It proposes targeted reductions in VAT rates for select goods and services to stimulate consumption and mitigate the economic impact of the ongoing pandemic.

As Vietnam navigates the complexities of a post-pandemic economic landscape, the Ministry's recommendations underscore the imperative of adaptive fiscal policies. By striking a delicate balance between economic stimulus and fiscal prudence, policymakers aim to steer the nation towards sustained recovery and prosperity.

In the face of ongoing economic challenges exacerbated by the Covid-19 pandemic, Vietnam's Ministry of Finance presents a nuanced approach to fiscal policy.

Proposals for VAT reduction underscore the government's commitment to supporting businesses and individuals while navigating the complexities of a rapidly evolving global landscape.

As Vietnam charts its course towards recovery, the Ministry's recommendations serve as a pragmatic roadmap for sustained economic resilience and growth.