VAT: Vietnam's new cut should stimulate the economy!

VAT: Vietnam's new cut should stimulate the economy!

On May 13, 2025, Finance Minister Nguyen Van Thang introduced a draft resolution to reduce VAT in Vietnam. The National Assembly decided to reduce the VAT rate for certain groups of goods and services from 10% to 8%. The period of validity of this measure is from July 1, 2025 to December 31, 2026. The aim of this initiative is to support companies, reduce production costs and increase demand.

However, telecommunications, financial activities, banking, securities, insurance, real estate transactions, metal products, mining products (except coal) and goods subject to special excise duty (except gasoline) are excluded from the reduction. These restrictions may limit the impact of the cut on domestic consumption and corporate profits.

Economic challenges and perspectives

Despite some successes, the Vietnamese economy continues to face significant challenges. High production costs and a slow improvement in domestic purchasing power are putting a strain on the economic situation. The USA also announced counter tariffs on products from Vietnam, which further complicates the situation. Economic and Financial Committee Chairman Phan Van Mai supports continuing the VAT reduction to achieve an 8% growth trend.

The expected declines in government budget revenues are alarming. These are estimated at approximately VND 121,740 billion in the last six months of 2025 and in 2026. Of this, around VND 39,540 billion will be in the second half of 2025 and VND 82,200 billion in 2026. There are concerns about how stable and effective the tax policy can be implemented.

Previous actions and lessons from the past

Already on February 1, 2022, Vietnam introduced a temporary VAT reduction from 10% to 8%, which was valid until December 31, 2022. This measure was intended to promote economic recovery after the Covid-19 pandemic and mainly affected import, manufacturing and processing goods. Banking and telecommunications services, metals and real estate were excluded.

The reduction at that time cost the state budget approximately VND49.4 trillion (approximately $2.2 billion). This sum was estimated to be a third of the losses suffered by Germany under a similar measure. Consumers in Vietnam felt the reduction primarily at supermarket checkouts, while the impact was smaller in traditional markets and street shops. Initial positive trends were noted, but there were also concerns about possible dangers related to tax policy.

Experts demand that the Vietnamese government take into account the experiences of other countries, such as Germany, when implementing the new VAT reduction. In Germany, a similar measure during the Corona crisis showed only limited results as consumers did not translate the savings into increased consumption. In Vietnam, the psychological impact of the cut could be more pronounced, meaning the savings could positively influence consumer purchasing behavior. However, this reduction must be accompanied by a real economic recovery and the end of all corona-related restrictions.

Vietnam's liberal economic policies and various free trade agreements could help the country reposition itself in this challenging time. The coming months will be crucial to check whether the measures can achieve the desired effects. Further information on the planned measures and their effects can be found at Vietnam.vn and Freiheit.org.

For more details please visit Vietnam.vn and Freedom.org.