According to the Finance Minister, the proposed changes are intended to help overcome the aftermath of natural disasters, restore production and business activities - especially in agriculture - and remove bottlenecks related to VAT refunds.

The proposal highlights that although a new VAT law was passed in November 2024 and is set to take effect on July 1, 2025, practical challenges have emerged during the initial implementation phase.

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Finance Minister Nguyen Van Thang presents the proposal. Photo: National Assembly

Industry associations and enterprises have reported policy-related difficulties in agricultural VAT, livestock feed, and refund conditions. Many companies are required to pay 5% input VAT on agricultural products acquired through commercial channels.

For goods that are primarily exported - such as pangasius, pepper, and coffee - the VAT paid is eventually refunded. However, this leads to significant time loss and capital being tied up, as credit institutions do not disburse funds corresponding to the VAT portion when issuing working capital loans. This results in financial pressure and reduced business efficiency.

Businesses also point out that the current legal framework creates discriminatory treatment between domestically produced and imported agricultural and aquatic products. Imported goods are not subject to VAT at the point of entry, putting domestic producers at a disadvantage.

In addition, livestock feed is currently categorized as VAT-exempt, which means businesses producing it cannot deduct or receive refunds for input VAT, driving up costs and retail prices - ultimately affecting livestock farmers. This regulation is viewed as unfair and could reduce competitiveness against imported feed, which is also VAT-exempt.

Currently, tax refunds are only granted when the seller has declared and paid VAT. As a result, exporters eligible for input VAT refunds often face delays while authorities verify whether their suppliers have complied with tax obligations.

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A seafood processing facility. Photo: Hoang Ha

Unprocessed farm, forest, and aquatic goods proposed to be VAT-free

The government has proposed an amendment to Clause 1, Article 5 of the existing law (regarding VAT exemptions). The revised clause would stipulate that “Products from cultivated plants, planted forests, livestock, aquaculture, and wild-caught seafood that are unprocessed or only undergo simple preliminary treatment by individuals or organizations and sold domestically or imported shall not be subject to VAT.

Similarly, cooperatives and enterprises that trade in such unprocessed goods with other cooperatives or enterprises shall also be exempt from VAT, according to regulations set by the Minister of Finance.”

The government also proposes allowing full deduction of input VAT on goods and services that are not subject to output VAT.

According to the government, this proposal will not negatively impact state budget revenue but will reduce administrative burdens related to tax declaration, payment, and refund procedures. It also preserves the fundamental VAT principle: input VAT on goods and services used in taxable business activities is fully deductible. These goods, when sold to end consumers, will still incur the standard 5% VAT rate.

The proposal is expected to support the export of agricultural, forestry, and aquatic products by eliminating the need for businesses to prepay VAT and later apply for refunds. It also aims to simplify procedures, reduce time and opportunity costs for enterprises, and curb invoice fraud and refund abuse.

Additionally, the government proposes eliminating the clause that subjects unprocessed farm, forest, and aquatic products used in animal feed or medicine to VAT based on the same rates applicable to such products.

Tran Thuong