Vietnam extends VAT cut until 2024

Vietnamese authorities we have expanded a two percent reduction in value added tax (VAT) on certain goods and servicespursuant to Decree 72/2024, issued on June 30, 2024. This extension maintains the VAT rate at 8 percent from July 1, 2024 to December 31, 2024. The initial VAT reduction, established by Decree 94/2023/ND-CP in December 2023, initially applied from January 1 to June 30.

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

Background

At the end of May 2024, the Vietnamese government approved a draft proposal to continue the VAT reduction from 10% to 8% on certain goods and services, which will be effective from 1 July until the end of 2024.

This proposal was then submitted to the National Assembly with a request to approve the maintenance of the 2 percent VAT reduction on certain categories of goods and services in the second half of 2024.

What is the VAT reduction?

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

The latest Vietnamese government regulation No. 72/2024 extends the VAT reduction until the end of 2024, but does not expand the list of eligible goods and services.

Under the decree, goods and services that are normally subject to a 10 percent VAT rate will continue to be subject to a 2 percent reduction (resulting in an 8 percent tax rate) until the end of 2024.

There are, however, some important exceptions:

• Telecommunications, financial activities, banking, securities, insurance, real estate, metals, fabricated metal products, mining products (excluding coal), coke, petroleum refining and chemical products;
• Goods and services subject to special consumption tax; and
• Information technology.

The VAT reduction applies equally at all stages – import, production, processing and commercial activity.

Businesses offering goods and services that qualify for a VAT reduction must submit a VAT return using form 01 in Annex IV.

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

The VAT reduction will be applied uniformly at all stages – import, production, processing and trade – of eligible goods and services.

What impact can be expected from the VAT reduction?

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

According to market analysts, the VAT cut played a key role in stabilizing production and business activity, which in turn led to job creation and improved living standards. By reducing production costs, businesses were able to price their products more competitively, which encouraged more consumer spending. The policy was particularly beneficial for the retail, automotive, and manufacturing sectors, which benefited significantly from the reduction in tax burdens.

Consequences for businesses

The extension of Vietnam’s 2% VAT cut under Decree 72/2024 has a significant impact on businesses by reducing operating costs and increasing competitiveness.

For businesses involved in the import, production, processing and trade of qualifying goods, this tax relief means immediate financial savings, allowing them to reinvest in their business, potentially increase employment and offer products at more competitive prices.

This reduction also helps stabilize production and business activity, which is key to maintaining economic growth in the face of global uncertainty. By reducing the cost burden, businesses can increase domestic consumption, boost sales volumes and ultimately contribute to a more robust and resilient economy. This policy is particularly beneficial for sectors such as retail, automotive and manufacturing, where reduced costs can directly translate into lower prices for consumers, stimulating demand and supporting a more dynamic market environment.

Businesses should continuously monitor changes in Vietnam’s legal regulations and plan for related tax reporting and compliance requirements.