HCMC – The Ministry of Finance in Vietnam has proposed a 5% value-added tax (VAT) for fertilizers, a departure from the current tax-exempt status outlined in the Value-Added Tax Law.
Under the current tax regime, fertilizers are categorized as non-taxable, which means businesses in this sector cannot declare or offset input VAT. This limitation has impacted production costs and overall profitability.
The proposed taxation adjustment is seen as crucial to bolster the competitiveness of domestic fertilizer production when compared to imported alternatives, according to the ministry.
Foreign fertilizer sellers can recover their input VAT, potentially allowing them to offer lower selling prices and gain a competitive advantage. Meanwhile, the Government may miss out on VAT revenue at the import stage, where import taxes are generally low or even zero.
Both domestic fertilizer manufacturers and the Ministry of Industry and Trade have jointly recommended reclassifying fertilizers into the 5% VAT category.
Taking cues from global practices, the Ministry of Finance said that many countries adopt favorable tax policies for fertilizers, recognizing their vital role in agricultural production.
Fertilizers in Thailand, Laos, Myanmar, the Philippines, Pakistan, and the United States are exempt from VAT. Conversely, countries like China, Romania, Croatia, and India implement low tax rates on the products, reflecting diverse international approaches to this essential agricultural input.
If the proposal receives approval, buyers of fertilizers would shoulder a 5% VAT. However, the Ministry of Finance said that potential market-driven pricing adjustments could ultimately benefit consumers.
