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2% VAT reduction creates a good effect for the economy

A bill of 1 million VND reduced by 20 thousand VND, it seems small but not small

The adjustment and reduction of 2% VAT will be applied from February 1 to the end of December 31, 2022 for goods in the fields of import, production, processing and trade…

According to the General Department of Taxation, this measure will cost about 49.4 trillion dong of the national budget, equal to one-third of the recorded loss of Germany in the unexpected VAT cut at the end of the year. 2020.

This is the second time Vietnam has used this policy since the global financial crisis in 2009. With this policy, consumers will enjoy a reduction in VAT in daily spending, especially when paying at supermarkets and when shopping at large stores. But this decision will have less effect in traditional markets and street shops, where VAT invoices are not normally issued.

The policy has initially shown positive effects, but risks are still lurking. The government should still be cautious and pay attention to the experiences of countries that have used this measure to help the policy achieve its goals.

Lessons learned from Germany

In Germany, after the crisis from the Covid-19 pandemic, the Government of this country has applied a reduction of VAT from 19% to 16%. for most items from 1/7/2020. This is expected to bring about growth in consumption and consequently economic growth. However, when this temporary measure expired on December 31, 2020, the situation became more serious.

The reason is that Germany’s very thorough embargo policy has put many companies in a difficult situation and not all service providers really reduce VAT for customers. Thus, in some cases, the final price of the good or service remains the same. In addition, when inflation was still increasing, up to more than 5% in February 2022, accompanied by a zero interest rate policy, this decision made people’s savings depreciate.

According to the Ifo Institute for Economic Research, this reduction is only about two-thirds of the prescribed level. However, in reality, the money that consumers save is not used by them to spend more.

According to a report in the German magazine “DIE ZEIT” dated January 4, 2021, the policy of reducing VAT simply failed to meet its target. Consumers don’t want to spend too much when they feel insecure about the future.

In Vietnam, the Government should still be cautious and pay attention to the experiences of countries that have applied this measure. The dramatic impact of the VAT cuts could appear as soon as the effect ends. Overall, the reduction of VAT is an important step forward for Vietnam, but it must go hand in hand with a real recovery of the economy.

Currently, the issue of great concern is the economic recovery. In that context, we have absolutely grounds to be optimistic because fiscal and monetary measures have so far remained cautious and do not reduce the role of the State Bank and the Government.

Vietnam is unlikely to fall under the policy of excessive debt (according to modern monetary theory). Vietnam’s free economic policy, reflected in many new-generation free trade agreements and investment promotion policies, will help Vietnam regain its position.

https://cafef.vn/giam-thue-gtgt-2-tao-hieu-ung-tot-cho-nen-king-te-20220427000336128.chn


According to Anh Ngoc

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