The Audit Newspaper had a discussion with Dr. Phung Ha - Vice President and General Secretary of the Vietnam Fertilizer Association regarding the VAT issue for fertilizers.

* Sir, following the implementation of Law No. 71/2014/QH13 dated November 26, 2014, amending and supplementing a number of articles of tax laws (Tax Law 71), what shortcomings and limitations have emerged?

- Over the period of implementation, Value-Added Tax (VAT) Law No. 71/2014/QH13 dated November 26, 2014 (hereinafter referred to as Tax Law 71), which took effect on January 1, 2015, has been put into practice.

Alongside the achieved outcomes, the implementation of this VAT policy has also revealed several drawbacks and constraints. Specifically, under the provisions of Law 71, fertilizers are classified as non-taxable goods (not subject to VAT). Consequently, fertilizer manufacturing enterprises have encountered several difficulties: Since they cannot declare and deduct input VAT on goods and services—including investments and procurement of fixed assets for fertilizer production—these costs must be incorporated into product costs, resulting in higher production costs and lower profit margins, and creating a competitive disadvantage against imported fertilizers.

This also disincentivizes fertilizer manufacturing enterprises from investing in, procuring, repairing, and upgrading fixed assets to produce high-tech, high-quality, next-generation fertilizer products.

Furthermore, under Law 71, imported fertilizers are not subject to VAT, which benefits foreign manufacturers when exporting fertilizers to Vietnam while negatively impacting domestic producers who bear the burden of uncredited input VAT costs.

* Could you provide some (estimated) figures to illustrate the net negative impact of Tax Law 71?

- Under Tax Law 71, fertilizer manufacturing enterprises cannot deduct or claim refunds for input VAT on purchased goods and services. Since 2020, member units of the Association have either not calculated or not reported updated figures to the Association, so we only have data up to 2020.

Fertilizer manufacturing enterprises under the Vietnam National Chemical Group (including producers of urea, DAP, superphosphate, fused calcium magnesium phosphate, and NPK) were unable to deduct approximately 400 to 650 billion VND annually, while two fertilizer manufacturing subsidiaries of Vietnam Oil and Gas Group suffered non-deductible VAT of 500 to 650 billion VND per year. More specifically, according to statistics from the Vietnam National Chemical Group, the uncredited VAT added to corporate production costs in 2018 for several units was as follows: Ha Bac Nitrogenous Fertilizer and Chemicals JSC exceeded 141 billion VND, Lam Thao Fertilizers and Chemicals JSC reached 142 billion VND, Ninh Binh Nitrogenous Fertilizer Single-Member LLC reached 113 billion VND, among others.

According to data from the PetroVietnam Fertilizer and Chemicals Corporation (PVFCCo), PVFCCo's input VAT was 284 billion VND in 2016, 371 billion VND in 2017, 518 billion VND in 2018, 358 billion VND in 2019, and 326 billion VND in 2020.

According to a published estimate, the scale of Vietnam's fertilizer industry is worth hundreds of trillions of VND per year; with an uncredited tax rate across the industry estimated at 5%, sector-wide enterprises bear a burden of several trillion VND per year.

* If fertilizers are reclassified as VAT-taxable goods, what percentage rate do you consider appropriate?

To resolve these bottlenecks, facilitate the stable and sustainable development of the domestic fertilizer industry, and establish a level playing field between domestic manufacturers and importers, it is imperative to shift fertilizer products from non-taxable to VAT-taxable status. Regarding the proposed tax rate, numerous workshops and conferences have addressed this topic. For example, the Ministry of Industry and Trade proposed that the Ministry of Finance categorize fertilizers as goods subject to a VAT rate of 0–5% and report to the Government for submission to the National Assembly for review and ratification.

The Ministry of Finance stated: International experience demonstrates that because fertilizers serve agricultural production, many countries design VAT policies with preferential rates compared to standard commodities. The Ministry of Finance received petitions from the Vietnam Fertilizer Association and fertilizer manufacturing enterprises requesting that fertilizers be shifted to VAT-taxable status at a rate of 5%.

* In recent times, what proposals and recommendations has the Association made to relieve difficulties for fertilizer enterprises and farmers?

- To address the difficulties and limitations affecting the fertilizer sector, since 2015 the Vietnam Fertilizer Association has submitted official dispatches to the Prime Minister, the Ministry of Finance, the Vietnam Chamber of Commerce and Industry (VCCI), and other relevant authorities recommending amendments to Law 71 to classify fertilizers as taxable goods at a rate of 0% or 5%. Many seminars and workshops regarding Law 71 have been organized; extensive news reports and articles across mass media have highlighted the necessity of amending Law 71.

In 2015, under Document No. 7050/VPCP-KTTH dated September 8, 2015, the Prime Minister directed that "regarding fertilizers, the Ministry of Finance shall chair and coordinate with relevant agencies to evaluate the implementation status in 2015 to propose amendments in 2016."

In 2020, under Notice No. 66/TB-VPCP dated February 27, 2020, the Government Office announced the Prime Minister's directive that "ministries and sectors must urgently formulate and submit to the Prime Minister policy support packages covering credit, tax, export, and domestic market expansion, including solutions that must be reported to the National Assembly Standing Committee or the National Assembly if deemed necessary." In executing this directive, the Vietnam Fertilizer Association issued Document No. 299/HHPBVN dated March 3, 2020, petitioning the Ministry of Agriculture and Rural Development, the Ministry of Industry and Trade, and the Vietnam Chamber of Commerce and Industry, following prior submissions to the Prime Minister’s Working Group and the Ministry of Finance, to report to the Government for submission to the National Assembly to amend Law No. 71/2014/QH13.

Thank you, sir!