In response to voters in Lam Dong Province, who proposed eliminating VAT on electricity prices, the Ministry of Finance confirmed that under current VAT laws, electricity is classified as a taxable commodity subject to the standard 10% rate.

According to the Law on Value-Added Tax, there are three applicable rates: 0%, 5%, and 10%.

A 0% VAT is applied to exported goods and services. The 5% rate covers essential goods and services, including inputs for agricultural production. The standard 10% VAT rate applies to all other goods and services, including electricity.

Therefore, the Ministry stated that the proposal to exempt electricity from VAT is inconsistent with current legal provisions and cannot be implemented under the existing law.

Regarding the request for a single electricity price mechanism, the Ministry of Finance noted that it has consulted with the Ministry of Industry and Trade, the lead regulatory body in the energy sector.

Electricity, the Ministry stressed, is a unique commodity, where production and consumption occur simultaneously, and energy storage remains costly and technically challenging.

The current electricity dispatch model prioritizes low-cost power plants, activating more expensive ones only as demand increases. This pricing approach ensures supply meets consumption while optimizing cost.

The Ministry stated that while the tiered pricing system is relatively simple to apply, it encourages users to conserve energy and use it more efficiently.

This model is not unique to Vietnam. Developed countries such as Japan and South Korea, as well as many regional neighbors, also implement tiered electricity pricing, where each higher consumption tier is charged at a higher rate.

Under the Law on Electricity, retail electricity prices are determined according to consumer group classifications, tailored to prevailing economic conditions and market competition phases.

These categories include electricity use for manufacturing, business, public services, and household consumption.

For eligible consumers, electricity prices also vary by time of use-peak hours, off-peak hours, and normal hours.

For households, a progressive tiered pricing system is applied, in which the price increases with higher levels of consumption.

These regulations are designed to encourage efficient electricity use and reduce waste.

Nguyen Le