IMPORTANT AMENDMENTS IN THE 2024 VALUE-ADDED TAX (VAT) LAW

1. Continuing the VAT Reduction to 8% – Supporting Businesses and Consumers

One of the most notable features of the 2024 VAT Law is the continuation of the policy to reduce the VAT rate from 10% to 8% for specific groups of goods and services. According to Resolution No. 174/2024/QH15 and Resolution No. 204/2025/QH15, this preferential VAT rate will be extended until the end of 2026. The the policy aims not only to stimulate consumption but also to serve an “economic cushion” to help small and medium-sized enterprises restore their production capacity after a prolonged period of hardship. Although the 2% reduction is not a new measure, its codification into law underscores the State’s clear commitment to supporting the business community.

2. Adjusting the Scope of Taxable Goods and Services – Narrowing the “Grey Area”

In addition to the VAT rate reduction, the amended VAT Law also revises the scope of goods and services subject to taxation. Certain specific items—such as acgricultural machinery, fertilizers, education equipment, and forestry products—will be reclassified from the non-taxable group to either the preferential 5% VAT rate or 0% if designated for export. This is an important step to make tax policy more transparent, preventing the abuse of tax exemptions for illicit profit gain, and aligning more closely with international standards as Vietnam enters new free trade agreements. However, businesses operating in these sectors must also ensure proper documentation and compliance in order to benefit from qualify for the preferential rates.

3. Stricter Conditions for Input Tax Credit – All Expenses Must Be Cashless

According to the new provision in Article 14, all VAT input invoices—regardless of value—must be paid through non-cash methods to be eligible for input tax credit. Previously, businesses were allowed to pay for invoices under VND 20 million and still claim VAT credit. Now, this regulation requires all parties to comply with bank transfers or other cashless payments, aiming to reduce fraud and the use of fake invoices. This change supports the Government’s digital transformation agenda by promoting transparent, cashless transaction habits. However, it also compels small business households and micro-enterprises to shift their payment practices, which may lead to increased transaction costs. In return, businesses that comply will benefit from improved cash flow control and stronger protection of their tax entitlements.

4. Using personal identification numbers instead of tax codes – A stepping stone toward comprehensive income management

In addition, the adoption of personal identification numbers in place of tax codes for individuals and household businesses from July 1, 2025, is also a significant reform step. Once personal identification numbers are integrated into the tax management system, tax authorities will find it easier to check and cross-reference income, avoiding revenue loss for the State budget and reducing tax evasion. This is an inevitable trend, but it also requires strict protection of personal data and upgrading the national database system.

Furthermore, the new regulations expand eligibility for VAT refunds to businesses that exclusively produce or trade in goods and services subject to reduced VAT rates (such as 5%) and have uncredited input VAT remaining after 12 months. This change helps ease the working capital burden for exporters in the agriculture, forestry, and fishery sectors, thereby encouraging increased production and export activities.

In summary, the amended 2024 VAT Law represents a comprehensive reform that balances objective of stimulating economic recovery with the need to enhance transparency and fairness in the tax system. These changes require the business community and households enterprises to proactively upgrade their accounting systems, comply with the new regulations, and prepare to adapt to more modern management standards.

If properly implemented, the new tax policy will serve not only as a tool for revenue collection but also as catalyst for boosting production, stimulating consumption, and fostering a more transparent and sustainable business environment in the years ahead