Positive Impacts on Vietnam’s Economy from VAT Reduction:

Reducing VAT helps lower the cost of goods and services, thereby stimulating consumer demand, especially in the context of economic recovery post-pandemic or during an economic downturn. Additionally, it directly benefits consumers by reducing their purchasing costs, thereby increasing purchasing power for the economy.

Businesses also benefit from lower tax costs, helping reduce price pressures, maintain profitability, and boost production and business activities. Simultaneously, the VAT reduction creates room to control inflation in the short term, particularly during periods of significant market price volatility.

Key Provisions of the Decree:

• VAT Reduction Scope:
  VAT is reduced for goods and services currently subject to the 10% rate, except for the following: a) Telecommunications, financial activities, banking, securities, insurance, real estate, metals, fabricated metal products, mining products (excluding coal mining), coke, refined petroleum, and chemical products. Details are listed in Appendix I attached to this Decree.
  b) Goods and services subject to special consumption tax. Details are listed in Appendix II attached to this Decree.
  c) Information technology as regulated by IT laws. Details are listed in Appendix III attached to this Decree.
  d) The VAT reduction applies uniformly at all stages of import, production, processing, and commercial trade. For coal sold after extraction (including coal screened and classified through closed processes), the VAT reduction is applicable. Other stages of coal sales not listed in Appendix I are not subject to the VAT reduction.

• Exclusions:
  Goods and services mentioned in Appendices I, II, and III attached to this Decree, which are either exempt from VAT or subject to the 5% VAT rate as per the VAT Law, will not benefit from the VAT reduction.

VAT Reduction Rates:

1. For businesses using the credit method:
   A VAT rate of 8% is applied to goods and services specified in this Decree.
2. For businesses using the direct percentage method (including individual and household businesses):
   A 20% reduction in the percentage rate for VAT calculation is applied when issuing invoices for goods and services subject to VAT reduction under this Decree.

Implementation Procedures:

1. For businesses under the credit method:
   On VAT invoices for eligible goods and services, the VAT rate should state “8%,” along with the VAT amount and the total amount payable by the buyer. Based on these invoices, sellers declare output VAT and buyers declare input VAT deductions as per the reduced VAT amount.

2. For businesses under the direct percentage method:
   On invoices for eligible goods and services, the total before reduction should be fully stated, and the total after a 20% reduction in the percentage rate for VAT calculation should be noted, with a remark: “Reduced by… (amount) as per Resolution No. 174/2024/QH15.”

Effective Date:

This Decree takes effect from January 1, 2025, and will remain valid until June 30, 2025.

Globalink Law Firm.