Hanoi (VNS/VNA) - The Ministry of Finance will consider a value-addedtax (VAT) rate of 5 percent on fertiliser products which are now free of VAT inresponse to domestic producers’ claim that the zero VAT policy made it harderfor them to compete.

Director of the ministry’s Tax Policy Department Pham Dinh Thi told Vietnam News Agency this could beincluded in the amendments to the Law on VAT.

According to the law which took effect in 2015, fertilisers are exemptedfrom VAT to ensure reasonable fertiliser prices, aiming to encourage domesticfertiliser production as well as agricultural production.

However, the policy had not worked as effectively as expected.

According to the Vietnam Fertiliser Association, since the law came in force,the prices of fertiliser products in the domestic market rose by 7.2 – 7.6 percentcompared to when a VAT rate of 5 percent was imposed previously.

The reason was that as fertiliser products were free from VAT, producers couldnot deduct the VAT they had paid for input and had to include it in the sellingprice, which pushed production costs and resulted in higher prices of domesticfertilisers.

Domestic producers said the policy eroded their competitiveness againstimported products which had more competitive prices due to lower productioncosts and the export country’s policies of zero export tax and VAT deduction oninputs.

Although local fertiliser production capacity could meet domestic demand forsome products, Vietnam imported more than 4 million tonnes of fertiliserproducts per year since 2015, mainly from China, Indonesia, Malaysia, thePhilippines, Russia and the Middle East, with an average value of 1.33 billionUSD.

According to general secretary of the Vietnam Fertiliser Association Phung Ha,the policy also discouraged domestic producers from expanding production andinvesting in new fertiliser products.

Ha said that amending the zero VAT policy was essential to enable domesticproducers to compete with imported products and reduce reliance on imports,which would aid sustainable agricultural development and ensure national foodsecurity.

In late May, the Ministry of Finance sent a document to the Ministry of Industryand Trade and the Vietnam Fertiliser Association which mentioned the ministry’splan of revising VAT policy on fertiliser products, putting the 5 percent VATunder consideration.

The finance ministry said that Prime Minister Nguyen Xuan Phuc asked theministry to compile amendments to the Law on VAT to propose to the NationalAssembly for consideration.

Nguyen Van Dong, director of fertiliser producer DAP 2- Vinachem, said theresponse of the Ministry of Finance was good news to domestic producers.

Dong said that he hoped amendments would be issued soon./.