VINACHEM

If services in non-tariff zones are taxed a 10 percent VAT, production costs will increase, affecting the competitiveness of Vietnam’s exports.

The draft of the amended Law on VAT is scheduled to be submitted to the ongoing National Assembly session (May 20-June 28) for opinions and to the eighth session for approval.

One of the tentative regulations that raises worries among EPE (export processing enterprises) is the removal of the zero percent VAT scheme applied to services provided to non-tariff zones or EPE. In addition, the draft law also shortens the list of export services subject to zero percent VAT.

EPEs are enterprises specializing in making products for export in non-tariff zones. If applying VAT (up to 10 percent) on services provided within the zones, this will lead to higher production costs and weaken Vietnamese products’ competitiveness.

The enterprises have warned that if the draft law is approved, it will not only affect foreign invested enterprises (FIEs), but also all enterprises of supply chains, including Vietnamese enterprises.

Samsung, which is now the biggest foreign direct investor in Vietnam with investment capital of $22.4 billion, will also face difficulties under the new regulation.

CEO of Samsung Vietnam Choi Joo Ho said the amended law, if approved, will create unfairness between EPEs and other enterprises (non-EPEs). The latter can enjoy the tax refund mechanism for input service expenditures, but the former cannot.

EPEs should be allowed to enjoy preferential policies as they make products for export, rather than being fully taxed, which would lead to high costs.

Choi said that the VAT law changes will affect the operations of six subsidiaries belonging to Samsung Group in Vietnam.

The removal of the zero-percent VAT scheme applied to EPEs was also raised at a recent workshop on amended draft law organized by the Ministry of Finance.

The participants at the workshop suggested two options. First, remove the zero-percent VAT (i.e. maintain the current regulations). Second, expand the group of services subject to zero-percent VAT; or offer tax refunds for EPEs’ input services.

This means that experts did not agree with the law compilers who wanted to raise the tax rate.

Nguyen Thi Minh Hang from the Finance Academy said it is necessary to either strictly observe the destination principle of taxation and maintain the zero-percent VAT scheme or apply a zero-percent tax rate to more services.

Nguyen Thi Cuc, chair of the Vietnam Tax Consultancy Association, warned that the removal of the zero-percent VAT will increase production costs and weaken enterprises’ competitiveness.  – VNN –