On the morning of August 14, the National Assembly Standing Committee gave opinions on explaining, accepting and revising the draft Law on Value Added Tax (VAT, amended).

2 views on VAT on fertilizer

Regarding the proposal not to change fertilizers and agricultural machinery and equipment from the non-taxable category to the 5% taxable category, Chairman of the Finance and Budget Committee Le Quang Manh said that there are two viewpoints in the standing committee.

The first viewpoint suggests keeping the current regulations because VAT is an indirect tax, and the person who bears VAT is the final consumer.

If fertilizers are subject to a 5% tax rate, farmers (fishermen) will be greatly affected because fertilizer prices will increase when VAT is applied, leading to an increase in the cost of agricultural products, contrary to the spirit of encouraging agricultural, farmer and rural development according to Resolution 19.

The second viewpoint is consistent with the content of the bill and the drafting agency, because the law moving fertilizers from being subject to 5% tax to not being subject to VAT has created a major policy inconsistency, adversely affecting the domestic fertilizer production industry over the past 10 years.

Enterprises have not been refunded input VAT (including investment costs for purchasing assets), and must account for it in expenses, increasing production costs and prices. Selling prices cannot compete with imported fertilizers that have switched from being taxable to being tax-free.

The inadequacies in the mechanism need to be brought back to the right track of VAT. The return to applying the 5% tax rate will have certain impacts on the selling price of fertilizers in the market, increasing the cost of imported fertilizers (currently accounting for only 26.7% of the market share).

At the same time, it will reduce the cost of domestically produced fertilizers (currently accounting for 73% of the market share); fertilizer manufacturing enterprises will receive tax refunds because output tax (5%) is lower than input tax (10%) and the budget will not increase revenue due to having to offset the increase in revenue from imports with tax refunds for domestic production.

Domestic enterprises have room to reduce selling prices if the prices of fertilizers and input materials in the international market remain unchanged.

In addition, fertilizer is currently a price-stabilized product, so if necessary, when there are large price fluctuations in the market, state management agencies can take necessary management measures to stabilize prices at a reasonable level.

Mr. Manh stated that the majority of opinions in the Standing Committee of the Committee were inclined towards the first view. The drafting agency proposed to keep the bill as it was presented at the 7th session. Based on the opinions of the Standing Committee of the National Assembly, the Standing Committee of the Committee will revise and complete the bill.

Fear that farmers will abandon their fields or have a backlash

Giving his opinion on the discussion, Vice Chairman of the Law Committee Nguyen Truong Giang analyzed that according to current law, fertilizers are not subject to tax, not 0%. Because they are not subject to tax, they cannot deduct or refund input tax for businesses.

From this reality, the enterprise proposed to impose a 5% tax to refund corporate tax. According to the argument of the drafting committee, this could reduce the selling price of fertilizers on the market.

"We have reviewed the entire impact assessment report. If we impose a 5% tax on fertilizers, the State will collect about 5,700 billion VND each year.

Of which, businesses received a tax refund of 1,500 billion VND; the state budget collected 4,200 billion VND. Collecting 5,700 billion VND from farmers and saying that it was due to a reduction in selling prices is not convincing," he said.

He suggested a closer assessment. According to him, cost price and selling price are two different issues. Because selling price also depends on the world.

"If a 0% tax is applied to fertilizers, businesses will still receive tax refunds from the state budget. Thus, the state budget will lose 1,500 billion VND/year, and at the rate of increase, it could reach 2,000 billion VND/year, but the selling price for farmers will be stable and not increase," he proposed.

Chairman of the National Defense and Security Committee Le Tan Toi said that he met with voters in Long An province and received phone calls from many provinces in the Mekong Delta. Farmers said that the fertilizer tax is not supportive of farmers.

Farmers report that only those farmers who have the conditions to produce concentrated, high-quality products make a profit. But the majority of people in the Mekong Delta still produce on a household basis, so production is already difficult.

If fertilizers are taxed at 5%, farmers will not understand the analysis as drafted.

"Agricultural production is already difficult, now if we tax farmers, they will abandon their fields or have the opposite reaction.

"The rural security situation will be complicated," he worried and suggested that support should be provided from the perspective of protecting farmers' production and rural security.