Fertilizer industry expects new policy

Source: nhandan.vn

According to the program of amending tax laws in 2024, the draft Law on Value Added Tax (amended) will be submitted to the National Assembly for comments at the ongoing 7th Session and is expected to be approved at the 8th Session (taking place in October 2024). One content that businesses are particularly interested in in the Draft Law is to change fertilizers for agricultural production to apply 5% VAT, instead of being in the group of “non-taxable” subjects as at present.

Businesses lose billions of dong due to not imposing taxes

According to current regulations, because fertilizers are not subject to VAT, input materials, investment costs for purchasing equipment, technology conversion, etc., which account for 40-60% of the product cost, are not subject to VAT deduction. Therefore, all input taxes paid by the enterprise must be added to the selling price, added to fixed costs, increasing the product price.

Pointing out this problem, Mr. Do Duc Hung, Deputy General Director of Apromaco Agricultural Materials Joint Stock Company, said that in the past 10 years, the company has invested in many activities to improve superphosphate production technology, install additional NPK fertilizer production lines, etc. to increase output, especially the quality of fertilizer products for agricultural production. However, because fertilizer is a non-taxable item, VAT expenses incurred during the production process cannot be deducted. This reality forces businesses to add it to the production cost, causing the selling price of fertilizer to skyrocket.

“The increase in resale prices depends on supply and demand and the market. Businesses cannot increase prices too high to cover costs, so they will suffer losses and the consequences will be ineffective production and business, with no more capital for reinvestment and research and development. In the past 10 years, the amount of VAT that has not been deducted is about 300 billion VND,” Mr. Hung is concerned.

Similarly, Mr. Nguyen Hoang Trung, Deputy General Director of DAP Vinachem Joint Stock Company, also said that all input costs must be included in the production cost, which is calculated at about 7-8% of the annual increase in production costs, estimated to cost about 100 billion VND each year, and in the past 10 years, the cumulative figure has reached thousands of billions of VND. In that context, imported fertilizers are not subject to tax, there are conditions to reduce selling prices, and domestically, manufactured goods have increased in cost, so the domestic fertilizer industry has not been able to control the market in recent times, and has had to follow the rules of imported fertilizers.

Mr. Trung assessed: “Imported fertilizers form a common price level in the market, we are forced to accept it. Production costs increase but selling prices cannot be adjusted accordingly. That is the biggest difficulty for the company, and also the reason for the decline in production and business.” The paradox leads to the possibility that we may “lose” at home. Enterprises are waiting for the State to have timely policies to support the industry.

The domestic fertilizer industry has recently faced many difficulties due to competition with imported goods. Photo: BAC SON

Many benefits of applying 5% VAT

Regarding this issue, Mr. Nguyen Van Phung, former Director of the Department of Large Enterprise Tax Management, General Department of Taxation, said that previously, when applying the Law on Value Added Tax in 2008, fertilizer was subject to 5% VAT. However, Law No. 71 issued on November 26, 2014 stipulates that fertilizer, machinery, and specialized equipment serving agricultural production are not subject to VAT from January 1, 2015. Since then, the fertilizer industry has encountered more difficulties when paying VAT.

Mr. Phung pointed out that in 2014, there was no data to prove that a 5% tax would be better than a 0% tax. But the reality of the past 10 years has proven that if a 5% tax is applied, fertilizer businesses have the opportunity to reduce prices for farmers, bringing efficiency to the agricultural economy.

Regarding the benefits of applying 5% VAT to the fertilizer industry, Mr. Phung said that there are three very specific benefits. Firstly, increasing budget revenue for import tax while maintaining the domestic selling price level. Farmers have the opportunity to request enterprises to sell at a lower new price, requesting fertilizer enterprises to implement the principles in accordance with the Law, deducting input needs to lower the selling price level. Secondly, we are moving towards a green economy, a circular economy, moving towards a rural agricultural economy. Currently, there are many large enterprises investing in rural areas, applying VAT helps fertilizer enterprises to deduct input VAT declaration. Thirdly, there are enterprises specializing in producing goods subject to 5% tax but the input is 10%, previously fertilizers, pesticides, pharmaceuticals, equipment… the output tax was lower than the input, the State refunded to enterprises, avoiding enterprises losing capital.

Currently, there are nearly 100,000 billion VND of non-deductible input VAT, which is in enterprises that are recording a debit in the accounting account – account 133, the input VAT is deductible but not deductible, it is a loss of capital. With this provision of the Law on Value Added Tax, enterprises will produce and do business better.

DAP – Vinachem representative also said that applying 5% VAT will help businesses reduce input tax costs, leading to lower prices and increased competitiveness in the market. From this opportunity, the domestic fertilizer industry will be more competitive with imported fertilizers, able to dominate the market and increase market share. Increasing market share will help businesses adjust selling prices and increase after-sales service for farmers. In addition, businesses will have resources and motivation to increase investment, reinvestment, upgrade and repair machinery and equipment, and expand production scale. This is a very important premise for the domestic fertilizer industry.

According to Mr. Do Duc Hung, currently fertilizer importers do not have input VAT, so they have a competitive advantage over domestic fertilizer manufacturers. If this situation continues, domestic fertilizer manufacturers will face extremely difficult situations, low production and business efficiency, and reduced production. Therefore, applying the new tax rate will make competition more equal between domestic fertilizers and imported fertilizers, especially fertilizers from countries with 0% fertilizer import tax such as China and ASEAN. Enterprises expect that if the new policy is passed, it will be a big “boost” for domestic fertilizer production.