The amendments eliminated the value added tax (VAT) on fertiliser, which also means that the fertiliser firms can no longer deduct the VAT they paid for the inputs. Because they can no longer deduct this cost from their taxes, they must increase the price of fertiliser by 5 to 8 per cent to achieve the same revenue, said Nguyen Hac Thuy, general secretary of the Viet Nam Fertiliser Association, at a conference held in Ha Noi on Friday.

But this means they struggle to compete with imported fertiliser, producers say.

Duong Tri Hoi, deputy general director of Petrovietnam Fertiliser & Chemicals Corporation, said that since the application of this law, in the period from 2015 to 2017, the amount of business tax they previously would have been able to deduct reached VND921 billion (US$40.39 million).

It is expected that the amount of this bill will soon rise even further because the enterprises have just invested in NPK fertiliser production lines, which yield complex compound fertilisers from Nitrogen, Phosphorous and Potassium. The investment means their input costs will be higher, and thanks to the new law they won’t be able to deduct the expense from their taxes.

Not only affecting farmers and domestic producers, the tax law amendments are also creating conditions for imported fertilisers to spill over into Viet Nam.

According to the statistics of the General Department of Viet Nam Customs, the amount of fertiliser imported in 2014 (before Law 71 was applied) was only 3.7 million tones. However, by 2017, this number was more than 5.6 million tonnes, up nearly 2 million tones. Imports of urea nitrogen increased 2.5 times.

In addition, neighbouring countries have tax policies to support domestic fertiliser enterprises, but Viet Nam has to reduce import tariffs under the commitments of many free trade agreements. Thus the tax law amendments will create favourable conditions for foreign fertiliser enterprises in the long run to "take over" the production of fertilisers in the country, a representative of Ha Bac Nitrogenous Fertilizer and Chemicals Company Limited warned. As domestic prices rise and import prices fall, farmers will turn to imported fertilisers.

Dinh Trong Thinh , a financial expert from the Academy of Finance, and Nghiem Quang Tuan, head of the Legal Inspectorate at the Department of Plant Protection under the Ministry of Agriculture and Rural Development, proposed the Ministry of Finance submit to the National Assembly amendments to Law 71 to subject fertiliser to the VAT rate as before, so that domestic enterprises investing in fertiliser production can reduce their costs.

This proposal also received support from the Viet Nam Chamber of Commerce and Industry (VCCI), Viet Nam National Chemical Group, Viet Nam Fertiliser Association, Viet Nam Farmers’ Association and fertiliser companies. — VNS