Vietnam's Finance Ministry to consider 5% VAT on fertiliser

ABO/VNS - The Ministry of Finance will consider a value-added tax (VAT) rate of 5 per cent on fertiliser products which are now free of VAT in response to domestic producers’ claim that the zero VAT policy made it harder for them to compete.

Director of the ministry’s Tax Policy Department Pham Dinh Thi told Vietnam News Agency this could be included in the amendments to the Law on VAT.

According to the law which took effect in 2015, fertilisers are exempted from VAT to ensure reasonable fertiliser prices, aiming to encourage domestic fertiliser production as well as agricultural production.

However, the policy had not worked as effectively as expected.

According to the Viet Nam Fertiliser Association, since the law came in force, the prices of fertiliser products in the domestic market rose by 7.2 – 7.6 per cent compared to when a VAT rate of 5 per cent was imposed previously.

A storehouse of Phu My Fertiliser Plant. The Ministry of Finance will consider a value-added tax (VAT) rate of 5 per cent on fertiliser products.

The reason was that as fertiliser products were free from VAT, producers could not deduct the VAT they had paid for input and had to include it in the selling price, which pushed production costs and resulted in higher prices of domestic fertilisers.

Domestic producers said the policy eroded their competitiveness against imported products which had more competitive prices due to lower production costs and the export country’s policies of zero export tax and VAT deduction on inputs.

Although local fertiliser production capacity could meet domestic demand for some products, Viet Nam imported more than 4 million tonnes of fertiliser products per year since 2015, mainly from China, Indonesia, Malaysia, the Philippines, Russia and the Middle East, with an average value of US$1.33 billion.

According to the general secretary of the Viet Nam Fertiliser Association Phung Ha, the policy also discouraged domestic producers from expanding production and investing in new fertiliser products.

Ha said that amending the zero VAT policy was essential to enable domestic producers to compete with imported products and reduce reliance on imports, which would aid sustainable agricultural development and ensure national food security.

In late May, the Ministry of Finance sent a document to the Ministry of Industry and Trade and the Viet Nam Fertiliser Association which mentioned the ministry’s plan of revising VAT policy on fertiliser products, putting the 5 per cent VAT under consideration.

The finance ministry said that Prime Minister Nguyen Xuan Phuc asked the ministry to compile amendments to the Law on VAT to propose to the National Assembly for consideration.

Nguyen Van Dong, director of fertiliser producer DAP 2- Vinachem, said the response of the Ministry of Finance was good news to domestic producers.

Dong said that he hoped amendments would be issued soon.

(Source: VNS)