VCCI has commented about a draft dossier on the amended VAT Law to be presided over by the Ministry of Finance (MOF).
A survey by VCCI found that VAT deductions are not given to some enterprises that produce unprocessed farm produce, seedlings, fertilizer, agricultural machinery, fishing boats, animal feed, salt production, computer software and other kinds of machines and materials.
The enterprises also do not receive a deduction for input VAT during the production and business process. Similar products don’t bear a VAT when they are imported, but still get a VAT deduction when they are exported to partner countries.
Imported products thus bear lower tax costs than domestically manufactured products. That is why the tax policy inadvertently encourages the import of products rather than domestic production.
“This is a serious problem that has existed for many years which needs to be settled when amending the VAT Law this time, or domestic production will continue to be placed at a disadvantage,” VCCI said.
VCCI asked the compilation agency to remove products and services that Vietnam imports from other countries for domestic consumption from the list of products not subject to tax and set appropriate tax rates on them.
Also, it proposed that products not subject to tax be included on the list of products taxed at 5 percent. The enterprises with a VAT proportion not higher than 5 percent would benefit from the move.
This will benefit domestic production as it reduces taxes that domestic enterprises have to pay, and will ensure tax fairness on imports.
The other proposal made by VCCI is shifting non-taxable product items to taxable items with tax rates of either zero or five percent.
This method maintains the two current tax rates of zero and five percent, so no new tax rate is created. Domestic enterprises will benefit as the tax will be lower and their products will be on a fair playing field with imports. However, if applying this method, the state budget would have to pay more money for tax refunds.
The tax law needs to be amended to ensure that domestically made products and imports bear the same tax rates, and to eliminate protection of foreign made products over domestically made ones.