In a bid to support its economy amidst global uncertainties, Vietnam’s Parliament, on 29 November, announced an extension of the existing 2% value-added tax (VAT) cut until the end of June 2024, as per Resolution No. 110/2023/QH15. This strategic decision aims to stimulate domestic consumption and production, providing a financial boost as the country faces challenges from a global economic slowdown.
Originally implemented in early 2022 as a response to the COVID-19 pandemic, the VAT reduction from 10% to 8% was set to expire in December 2023. While Vietnam’s economy has stabilized post-COVID, challenges persist, with exports declining by 6.4% to $306 billion in the year leading up to November 15, 2023. The anticipated economic growth of 5% falls short of the government’s earlier target of 6.5%, emphasizing the impact of global headwinds on the country’s export-driven economy.
The VAT cut relief extension is aimed at boosting internal consumption and alleviating the economic slump.
The sectors benefiting from the VAT cut, as outlined in Point a Section 1.1 Clause 1 Article 3 of Resolution No. 43/2022/QH15, include aviation, transport, tourism, accommodation, catering services, education and training, agriculture, processing and manufacturing, and social housing. However, certain sectors such as telecommunications, information technology, finance, banking, securities, insurance, real estate, metals and metal products, mining, refined petroleum, chemicals will not be covered by the reduced rate.
The Ministry of Finance estimates that the VAT reduction will result in a reduction of approximately VND25 trillion in State budget revenue in the first six months of 2024. This financial impact underscores the government’s commitment to prioritizing economic recovery.
In addition to the VAT extension, the government has introduced a comprehensive economic recovery plan. This includes an extension of timelines for projects related to land reclamation, compensation, support, and resettlement for the Long Thanh International Airport until the end of 2024. Furthermore, there are provisions for extending the implementation and disbursement of state-budget allocated funds for projects under the Social and Economic Recovery Program until December 31, 2024.
Looking ahead, the government has outlined plans to establish, manage, and utilize an investment support fund from global minimum tax revenues and other legal sources. This initiative aims to stabilize the investment environment, attract strategic investors, and offer support to domestic businesses in key sectors, further solidifying Vietnam’s commitment to sustainable economic growth in the coming years.
