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In a decisive move to sustain economic momentum, Vietnam’s National Assembly has approved the extension of a 2% value-added tax (VAT) reduction on specific goods and services until December 31, 2026. This policy continues to reduce the standard 10% VAT rate to 8% for eligible sectors, effective July 1, 2025.
The extension reflects Vietnam’s ongoing commitment to supporting businesses amid global economic uncertainties. Initially introduced on January 1, 2024, the VAT cut aims to lower input costs, stimulate domestic consumption, and stabilize macroeconomic conditions.
Scope of the VAT Reduction
The newly approved resolution broadens the list of goods and services benefiting from the VAT cut, applying uniformly across importation, manufacturing, processing, and trading stages. Notably, sectors such as transportation, logistics, and information technology services are now included—expanding beyond previous extensions.
Excluded from this relief are telecommunications, financial and banking services, securities, insurance, real estate, metal production, mining (except coal), and goods/services subject to special consumption tax (excluding gasoline).
Tax Compliance and Reporting Requirements
Businesses applying the deduction method must clearly indicate the reduced 8% VAT rate on invoices. Accurate invoicing is critical, particularly when multiple VAT rates apply to a single transaction. Both sellers and buyers bear responsibilities for compliance, including appropriate adjustments of input and output VAT.
Eligible goods and services must be declared using Form 01 alongside VAT returns, ensuring transparency and regulatory adherence.
Economic and Financial Impact
The VAT cut has proven effective in lowering production costs, enabling competitive pricing, and boosting consumer spending. Key beneficiaries include retail, automotive, and manufacturing sectors. Market observers credit the reduction with supporting job creation and improving living standards during a period of fragile global recovery and supply chain disruptions.
However, the tax concession will reduce state budget revenues by an estimated VND 26.1 trillion (approximately USD 1.03 billion). The government is tasked with balancing fiscal stability while maintaining this support.
Strategic Considerations for Multinational Enterprises
For multinationals operating in Vietnam, the VAT extension presents an opportunity to revisit pricing models, optimize supply chains, and enhance financial planning. Staying abreast of legislative developments and compliance requirements is essential for leveraging this policy advantage.
Vietnam’s evolving fiscal landscape underscores the importance of strategic tax planning to maintain competitiveness and operational resilience.
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