Fertilizers may be subject to 5% VAT.

According to Lanya

Investing.com – In the draft VAT law currently for consultation, the Ministry of Finance proposes a 5% tax rate on fertilizer products, rather than the current no tax.

According to the agency, most of the fertilizers imported by Vietnam are classified as subject to value-added tax by the exporting country, so its companies can obtain input tax refunds and have the opportunity to reduce selling prices.

“This puts it at a disadvantage when competing with imported fertilizers,” the finance ministry said.

At the same time, the state loses budget revenue due to the inability to collect VAT at the import stage, while import taxes are very low or have reached 0%. Farmers are forced to buy at high prices because domestic manufacturers push some of the tax cost into the price.

The Ministry of Finance stated that fertilizer companies, the Ministry of Industry and Trade, the Fertilizer Association, and National Assembly representatives from many provinces and cities also reflected the above difficulties and suggested that this item be changed to a 5% value-added tax.

Regarding the proposal to impose a 5% value-added tax on fertilizer products, Dr. Phung Ha, secretary-general of the Vietnam Fertilizer Association, said this will create a level playing field for domestic and imported manufacturers. Domestic manufacturing companies are also more equal when participating in international tenders. On the other hand, tax adjustments will help reduce fertilizer prices and create conditions for investment in high-quality, new-generation projects.

A representative of a domestic production company also proposed that it is necessary to promote the amendment of the law and increase the fertilizer tax from 0% to 4-5% to ensure competition. At the same time, “farmers themselves can also apply for this tax.” “Benefit from the decline in fertilizer prices.”

If the draft recommendations are approved, consumers purchasing fertilizers will pay an additional 5% value-added tax. However, the Ministry of Finance said that the sales prices of these items are determined based on market supply and demand, and reverse tax calculation can help consumers benefit.

According to the analysis, outsourced goods and services are not taxed or are levied at a rate of 5% to 10%. If the output tax is 5%, domestic fertilizer manufacturers do not need to pay this tax. That is, the input tax is deducted from the output, which is a tax refund. As a result, fertilizer production costs are reduced and domestic products become more competitive compared with imported products, the Ministry of Finance said.

The drafting agency also said that due to the VAT deduction, companies save costs and have more resources to expand investment, innovate technology, improve quality and reduce sales prices. Therefore, consumers who choose domestic products will benefit from this policy.

On the other hand, the Ministry of Finance cited the financial statements of five largest fertilizer manufacturing companies and stated that the total revenue of these companies in 2022 is close to VND48 trillion. If a 5% tax rate is adopted, the output tax will be close to VND2.4 trillion.

For example, DAP Joint Stock Company 2 – Vinachem still has VND200 billion in non-deductible VAT that must be paid into the budget. Assuming other companies are the same as DAP No.2-Vinachem, state budget revenue is expected to increase by about VND1 trillion.

Fertilizer is a commodity used in agricultural production, so many countries provide preferential policies. Some countries, such as Thailand, Laos, Myanmar, Philippines, Pakistan and the United States, do not charge VAT on this item. Meanwhile, countries such as China, Romania, Croatia and India have lower tax levels.

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