VietNamNet Bridge – Viet Nam National Chemicals Group's deputy director Bui The Chuyen told Nong thon ngay nay (Countryside Today) newspaper about how a new value-added tax on fertiliser could hurt farmers and local firms.

Fertiliser production firms have had opposite opinions about the new exemption on value-added taxes (VAT) for fertiliser, which will take effect in 2015. What do you think about this issue?

We've been very worried recently about the exemption policy. We also received a lot of complaints from our members, who are local fertiliser producers.

They said that the VAT exemption, which will reduce the value-added tax rate from 5 per cent to no tax, would seriously affect producers and farmers.

Can you give us more details about how the exemption would impact them?

Firstly, local fertiliser manufacturers will lose their competitive advantages over international firms because VAT exemptions will also be given to imported fertiliser products.

Local firms previously received 5 per cent VAT refunds from the total 10 per cent of taxes on input materials. However, with the new VAT exemption policy, they will have to pay a full 10 per cent in input taxes, and the added expense would be put on production costs.

Production cost increases also mean increasing product prices and reducing competitive strength against imported products. So, local fertiliser production firms could gradually die out in their own domestic market.

Also, fertiliser companies have been creating more supplies than demand can cover. Four factories, Ha Bac, Ninh Binh, Phu My and Ca Mau, produce around 2.6 million tonnes each year, while the country's demand has stagnated at 2.3 million tonnes.

Taking into consideration 500,000 tonnes of imported fertiliser, the country's yearly surplus is at least 800,000 tonnes.

What about farmers? How will they benefit from the tax policy?

It is not very likely that consumers or farmers will benefit from the policy, because local firms' production costs will be increasing along with selling prices. So farmers will be the ones who bear the losses.

How could the policy harm local fertiliser production firms?

The firms will also suffer losses if they do not receive alternative tax deductions. Two VINACHEM fertiliser production companies suffering the biggest losses are Ninh Binh and Ha Bac fertiliser companies, which spend 60 to 70 per cent of their production costs on coal. Ninh Binh Fertiliser Company said it will lose VND150 billion due to the VAT exemption policy.

What are your suggestions for handling the problem?

VINACHEM and the Ministry of Finance have received a lot of complaints from local firms. To handle the shortcomings, we will ask the Government to create some tax incentives for local fertiliser producers. Reducing taxes on input materials would help lower prices, and benefit both local firms and farmers.

VNS