Vietnam has officially extended the reduction of value-added tax (VAT) from 10 percent to 8 percent until December 31, 2024. This extension is detailed in Decree 94/2023/ND-CP, in line with Resolution No. 110/2023/QH15. Additionally, the Vietnamese government issued Decree 72/2024 on June 30, 2024, under Resolution 142/2024/QH15, providing implementation guidelines. The decree took effect on July 1, 2024, and will remain in force until the end of the year.

Scope of the 2% VAT Reduction

The 2 percent VAT reduction applies to all goods and services previously subject to a 10 percent VAT, with exceptions including telecommunications, IT, finance, banking, insurance, real estate, metals, prefabricated metal products, refined petroleum, chemical products, and those subject to special consumption tax. This reduction is uniformly applied across all stages of importation, manufacturing, processing, and trading for eligible goods and services. However, coal exploitation under mineral products is excluded.

Tax Reporting and Compliance

Companies using the deduction method for VAT declaration must indicate “8 percent” as the VAT rate on invoices for eligible goods and services. If goods or services are subject to different VAT rates, each rate must be clearly stated on the invoice.

If a seller issues VAT invoices for eligible goods or services at the normal VAT rate without applying the 2 percent reduction, both the seller and the buyer are responsible for complying with invoicing regulations and adjusting output VAT and input VAT accordingly.

Eligible goods and services for the 2 percent VAT reduction must be declared on Form 01, as prescribed in the decree, which must accompany VAT returns upon submission.

Rationale Behind the Tax Cut

Since its implementation on January 1, 2024, the 2 percent VAT reduction has been instrumental in lowering input costs for businesses across various sectors in Vietnam. It has stimulated domestic consumption, bolstered economic growth, and supported macroeconomic stability amid ongoing global uncertainties, including slow recovery in major trading partner economies and disruptions in global supply chains.

Market analysts note that the VAT reduction has directly contributed to stabilizing production and business activities, leading to job creation and improved living standards. By lowering production costs, businesses have been able to offer competitive prices, thereby further stimulating consumer spending. This policy has been particularly beneficial for sectors such as retail, automotive, and manufacturing.

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