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In a significant policy move aimed at stimulating domestic consumption and business recovery, Vietnam’s Ministry of Finance has released a draft resolution proposing a temporary 2% reduction in the country’s Value Added Tax (VAT) rate. The plan, aligned with Resolution 46/NQ-CP issued on March 8, 2025, would reduce VAT from 10% to 8% for a broad category of goods and services from July 1, 2025, to December 31, 2026.
The draft has been opened to public consultation before its submission to the National Assembly during the 9th session, set to commence in late May.
Read More: Vietnam Personal Income Tax 2025: Key Rules for Individuals and Employers
Scope and Sectoral Expansion
Unlike previous tax relief efforts in response to the COVID-19 pandemic and global inflationary pressures, this proposal widens the net of eligible sectors. The Ministry’s draft notably includes new industries that were previously excluded from VAT concessions, signaling a broader fiscal intent:
- Information Technology (IT) services
- Prefabricated metal products
- Coal (at import and trading stages)
- Coke and refined petroleum
- Chemical products
- Gasoline and associated fuels
The proposal preserves certain sectoral exemptions, most notably telecommunication services, real estate, and banking, which will continue to be taxed at standard rates.
Policy Rationale and Economic Context
Vietnam’s economic leadership is carefully balancing fiscal stimulus and macroeconomic stability amid global uncertainties and tightening credit conditions across Asia.
The government’s reasoning, per the explanatory memorandum attached to the resolution, is anchored in four pillars:
- Boosting household consumption by reducing the effective tax burden on final goods.
- Incentivizing investment and production, particularly in manufacturing and IT services.
- Aligning Vietnam’s tax policy more closely with ASEAN regional trends, where temporary VAT reductions have supported post-pandemic growth.
- Enhancing international competitiveness, especially for export-linked industries that face increasing cost pressures from raw materials and energy.
Vietnam’s GDP growth forecast for 2025 remains around 5.8%, down from earlier expectations of 6.3%, partly due to external trade headwinds. The VAT reduction is being pitched as a timely countercyclical measure to keep domestic demand afloat.
Revenue Impact and Fiscal Implications
Early Ministry estimates suggest the VAT reduction could cost the central budget approximately ₫45–₫50 trillion (USD 1.8–2 billion) over 18 months. However, officials argue that the net fiscal cost could be offset by:
- Increased VAT compliance and formalization of previously unregistered service providers.
- Higher tax collections from increased volume of consumption and production.
- Broadening of the tax base by including sectors such as IT and energy.
Fiscal observers are watching closely how this measure will interact with the country’s medium-term budget plan (2026–2030), where Vietnam has pledged to reduce its public debt-to-GDP ratio to below 40% by 2030.
Private Sector and Investor Reception
The draft resolution has drawn a largely positive response from Vietnam’s business associations, particularly the Vietnam Chamber of Commerce and Industry (VCCI), which issued a public statement supporting the move.
Global consulting firms and domestic enterprises have praised the inclusion of IT services, a growing pillar of Vietnam’s export economy. Vietnam has become a regional hub for software outsourcing, fintech, and digital infrastructure. A lower VAT burden on these services is expected to boost margins and attract new investment, especially from firms diversifying away from China.
Long burdened by high input costs and policy uncertainty, the energy and chemicals sectors also stand to benefit. However, environmental groups have raised concerns that VAT incentives on fossil fuels may undermine Vietnam’s green transition goals and climate financing credibility under its Just Energy Transition Partnership (JETP).
Procedural Path and Outlook
The proposal is currently undergoing public comment and is expected to face committee review and potential amendments before being tabled for a floor vote. Analysts predict the resolution will likely pass with broad support, given Vietnam’s track record of legislative efficiency in fiscal matters.
If approved in its current form, implementation guidance (likely in the form of a circular) will be issued by August 2025, with the reduced rates taking effect retroactively from July 1.
Conclusion
Vietnam’s proposed VAT reduction represents both a pragmatic economic stimulus and a strategic repositioning of its tax framework. While the policy carries short-term fiscal risks, it may yield medium-term dividends if it succeeds in fueling domestic demand, improving sectoral competitiveness, and reinforcing investor confidence.
The move could also signal a broader shift in Vietnam’s tax philosophy, which is increasingly dynamic, sector-sensitive, and integrated with global investment trends.
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