VAT drop can have "dual effect" to stimulate economic growth and curb inflation

According to the Ministry of Finance, purchasing power increased by 5% to 10% compared to weekdays at traditional markets in several major cities. However, purchasing power continues to be lower than that of many years ago due to the general effects of the pandemic on the socio-economic situation, thereby reducing people's income.

“Basically, the market price of consumer goods in the days before, during and after the lunar New Year (Tet) festival see no abnormal changes, with a number of essential items for Tet increased as a rude or according to the developments of world prices,” said a representative of the Ministry of Finance.

Reducing VAT contributes to curbing the rise of consumer price index

According to several economic experts, this tax reduction is anticipated to help reduce service costs, thereby stimulating consumption, promoting production and business, whilst also creating additional jobs for workers. Therefore, the move can be considered a necessary policy aimed at reviving the national economy that is continuing to face plenty of difficulties caused by the COVID-19 pandemic.

Dr. Vu Dinh Anh, an economic expert, commented, “The current common VAT rate is 10%, so a 2% reduction will have an impact on all transactions in the market. For consumers under income pressure, if they get a 2% VAT reduction, it means they will directly save 2% of their spending.”

The Ministry of Finance outlined that the VAT reduction will reduce state budget revenue this year by roughly VND49,400 billion. However, Dr. Anh also emphasized that the reduction of VAT will help to curb and control the increase in the consumer price index (CPI).

“The 2% reduction in VAT will help achieve two goals: supporting economic growth and stabilizing the macro-economy and controlling inflation. It can be said that this is an unprecedented choice in term of support through the most popular tax reduction, the most widespread and obvious impact on the market," Dr. Anh emphasized.