According to the Vietnam Fertiliser Association, the Government is set to grant VAT exemption for imported fertiliser products from this year.
If domestic firms cannot deduct VAT for materials to produce fertiliser, their production costs will rise and they will not be able to sell it at competitive prices to farmers, the association was cited as saying in a Vietnam Plus article published early this week.
The article quoted a "chemical expert," Phung Ha, as saying the fertiliser industry has been identified as a priority sector in the national development plan for chemical industries approved by the Prime Minister.
But, he added, without the VAT exemption for inputs, which include equipment and machinery, domestic firms will have to increase investments in production and selling prices will go up correspondingly, and the industry's development would be affected.
Bui The Chuyen, deputy general director of Vietnam Chemical Group (Vinachem), said its members are likely to suffer losses without preferential policies to reduce input costs. For instance, the Ninh Binh and Ha Bac fertiliser companies spend 60-70% of their production costs on coal, which does not enjoy the VAT exemption.
Other companies that produce the di-ammonium phosphate fertilisers (as opposed to NPK – nitrogen, phosphate and potassium), like Dinh Vu, Lao Cai and Van Dien are also in the same situation, Chuyen said.
Nguyen Van Thanh, head of the Chemical Department under the Ministry of Industry and Trade, said import taxes on finished-fertiliser products would reduce from 11% to 6% after the VAT expansion.
Local fertiliser products will face tough competition because imported ones will have lower selling prices, he said.
However, Pham Dinh Thi, head of Tax Policy Department under the Ministry of Finance, said local fertilisers cannot blame the lack of VAT exemption for the difficulties they face in competing with imported fertilisers.
At present, the VAT for input products for fertiliser production is still deducted when calculating corporate income tax, he said.
Moreover, in near future, Vietnam is mandated to ensure a level playing field for firms from all countries as it furthers its international integration via free trade treaties and other agreements.
Furthermore, the selling price also depends on the supply and demand situation in the market, so fertiliser makers should seek other solutions to overcome their current difficulties, not rely only on preferential tax policies, he said.