Mixed opinions on the proposal to impose a 5% tax on fertilizers

Continuing the Program of the Legal Session, on the morning of August 14, the National Assembly Standing Committee gave opinions on the draft Law on Value Added Tax (amended).

The content that received the attention of many delegates was the proposal to change fertilizers and agricultural machinery and equipment from non-taxable to taxable at 5%.

2 views on applying 5% tax rate on fertilizers

Reporting at the meeting, Chairman of the National Assembly's Finance and Budget Committee Le Quang Manh said that there were two opinions in the Standing Committee of the Finance and Budget Committee on the proposal not to change fertilizers and agricultural machinery and equipment from the non-taxable category to the 5% taxable category.

Overview of the meeting.

The first viewpoint suggests keeping the current regulations because value added tax (VAT) is an indirect tax, the VAT payer is the final consumer. If fertilizer is changed 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 No. 19-NQ/TW.

The second viewpoint is consistent with the content of the draft Law and the Drafting Agency, because Law No. 71/2014/QH13, which changes fertilizers from being subject to 5% tax to being exempt from VAT, has created a major policy inconsistency, adversely affecting the domestic fertilizer manufacturing industry over the past 10 years. Enterprises have not been refunded input VAT (including investment costs for purchasing assets), and have had to account for it in expenses, increasing production costs and prices, and selling prices cannot compete with imported fertilizers that have switched from being subject to tax to being exempt from tax. The inconsistency in the mechanism needs to be brought back to the right orbit of VAT.

This viewpoint holds that the return to 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, reducing the cost of domestically produced fertilizers (currently accounting for 73.3% of the market share); fertilizer production enterprises will be refunded tax because the output tax (5%) is lower than the input tax (10%) and the state budget will not increase revenue due to the need to offset the increase in revenue from imports with the tax refund for domestic production. Domestic enterprises have room to reduce selling prices if the prices of fertilizers and input materials in the international market do not change. In addition, fertilizers are currently a price-stabilized product, so if necessary, when there are large fluctuations in prices in the market, state management agencies can implement necessary management measures to stabilize them at a reasonable level.

“The majority of opinions in the Standing Committee of the Finance and Budget Committee lean towards the first viewpoint. The drafting agency proposes to keep the draft Law as presented at the 7th Session,” said Chairman Le Quang Manh.

"Farmers' revenue is 5,700 billion VND but the selling price is reduced, which is not convincing"

Deputy Chairman of the Law Committee Nguyen Truong Giang spoke.

According to Nguyen Truong Giang, Vice Chairman of the National Assembly's Law Committee, 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. Based on this reality, businesses propose to impose a 5% tax to refund corporate tax, and according to the argument of the drafting committee, this can reduce the selling price of fertilizers on the market.

“We have reviewed the entire impact assessment report of the drafting committee. If a 5% tax is imposed on fertilizers, each year, the State will collect about 5,700 billion VND. Of which, businesses will receive a tax refund of 1,500 billion VND; the State budget will collect 4,200 billion VND. Collecting 5,700 billion VND from farmers but claiming to reduce selling prices, I find it unconvincing,” said Mr. Nguyen Truong Giang.

He also 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 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, according to the growth rate, it can be up to 2,000 billion VND/year, but the selling price of farmers will be stable, not increase", he proposed a solution.

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 saying that the fertilizer tax does not support farmers. People reported that only farmers who have the conditions for concentrated, high-quality production can make a profit, but the majority of people in the Mekong Delta still produce on a household basis.

"Agricultural production is already difficult, now if we tax farmers, they will abandon their fields or have an adverse reaction, then the rural security situation will become complicated," Chairman Le Tan Toi worried.

Chairman of the National Defense and Security Committee Le Tan Toi speaks

Meanwhile, agreeing with the view of the Drafting Committee, General Secretary of the Vietnam Federation of Commerce and Industry Dau Anh Tuan affirmed that the 5% tax increase on fertilizers does not mean that the price of this item will increase. Mr. Dau Anh Tuan said that the recent tax exemption on fertilizers and many other agricultural materials was thought to be preferential but in fact created a burden on the domestic industry.

For example, he said that VAT is currently included in the cost of producing fertilizer, which is higher than 5%, on average it can be around 6% - 8% depending on the business. "Thus, we produce fertilizer that already contains VAT but cannot be refunded. Meanwhile, if foreign fertilizers are imported into Vietnam with an exemption policy, they will not have to pay this VAT, so in fact, competition between domestically produced fertilizers and foreign fertilizers is very difficult," he said.

According to him, our fertilizer production capacity is very large, if we apply a 5% tax, it means that imports will also be subject to a 5% tax. Besides, according to him, fertilizer is a product whose price can be controlled and stabilized./.