MoF proposes to expand tax base

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MoF proposes that products used for agricultural production are not subject to VAT. Illustrative photo: VNA

According to the MoF, the Ministry will amend and supplement regulations in Article 5 to narrow the entities not subject to VAT; revise Article 8 of the Law on VAT to narrow the 5% taxable entities.

Regarding the narrowing entities not subject to VAT, the MoF said that some agricultural and fishery producers (for example, fertilizers; agricultural machinery and equipment; offshore fishing vessels) not subject to VAT face difficulties because they are not allowed to declare and deduct input VAT on goods and services, and must include in product costs, causing the increase in the product price and the decrease in the profit. Thereby causing a disadvantage in competition with imported products of the same type. In addition, because the input VAT is not deducted, the current Law on VAT does not encourage enterprises to invest, purchase, repair and upgrade fixed assets to create high-quality products.

The MoF also said that the current regulations stipulate that public service groups (postal services, public telecommunications and universal internet, services to maintain zoos, flower gardens, parks, etc.) are not subject to VAT. However, globalization and socialization are widely developed, and many public service sectors are increasingly socialized.

Enterprises of all economic sectors have provided the groups mentioned above with public services. However, the regulation on socialized public services not subject to VAT is no longer appropriate because the input VAT of the investment capital put into service business will not be deducted or refunded. Therefore, according to the Ministry, to remove this shortcoming, revising to narrow the non-VAT subject to socialized public services is necessary.

For subjects of 5% tax, the Ministry of Finance said, referring to international experience (IMF statistics), the majority of countries (47.6% of countries) apply VAT schedule with one rate (excluding the tax rate of 0% for exported goods and services); 31.7% of the countries apply the VAT schedule with two rates and the rest apply more than two rates.

Most Asian states, especially ASEAN states, only apply one tax rate in addition to the 0% tax rate. Accordingly, to meet the international development trend and to achieve the goal of applying one VAT rate under the Tax System Reform Strategy, it is necessary to review to narrow 5% -VAT subjects, said the Ministry of Finance.

The current Law on VAT stipulates that several groups of public services (such as cultural activities, exhibitions, exercises and sports, art performances, film production, and import…) are subject to 5% VAT. However, these public services have been strongly socialized. Accordingly, it is necessary to amend the regulations on applying a preferential tax rate of 5% to socialized public services.

The Ministry of Finance said expanding this tax base will ensure a safe and sustainable national finance in restructuring the state budget and managing public debt under Resolution No. 07-NQ/TW and Resolution No. 23/2021/QH15. Furthermore, the expansion aims to apply a VAT rate according to the Tax System Reform Strategy by reducing the number of groups of goods and services that are not subject to VAT and subject to 5% VAT.

This proposal of the Ministry of Finance will also remove difficulties for domestic manufacturing enterprises, ensuring that domestically produced goods compete equally with imported goods of the same type. Furthermore, these regulations are completely in line with international practices, creating favourable conditions for enterprises to participate in international economic integration.