Vietnam Extends 2% VAT Cut Through 2026

On June 17, Vietnam’s National Assembly officially approved a resolution to extend the current 2% reduction in value-added tax (VAT) until the end of 2026. The decision, backed by 452 out of 453 lawmakers present, aims to support economic recovery and growth by easing the financial burden on consumers and businesses.

Under the newly passed resolution, the standard VAT rate will remain reduced from 10% to 8% for a wide range of goods and services as outlined in Clause 3, Article 9 of the VAT Law No. 48. The tax cut will take effect from July 1, 2025, and last through December 31, 2026.

Which Sectors Are Excluded?

The VAT reduction will not apply to several industries, including: Telecommunications, Financial services, banking, securities, and insurance, Real estate business, Metal and mining products (excluding coal), Goods and services subject to special consumption tax (except for gasoline). Additionally, educational and medical services, which are already exempt from VAT, are also excluded from the policy.

Related: Tax Accounting Services in Vietnam

Expanded Support, But With Limits

Before the vote, Finance Minister Nguyễn Văn Thắng presented the finalized proposal, noting that while some lawmakers called for a broader application of the VAT cut to all taxable goods, others suggested a larger reduction (4–5%) for select essential sectors.

In response, Minister Thắng emphasized that the current version already expands the range of eligible sectors compared to previous resolutions. Notably, the VAT cut will now apply to transportation, logistics, goods trading, and information technology services—sectors seen as vital to Vietnam’s digital and economic growth.

Fiscal Trade-offs

The government estimates that the VAT reduction will result in state budget revenue losses of approximately VND 121.74 trillion (USD 4.8 billion) over the next 18 months. That includes around VND 39.54 trillion in the second half of 2025 and VND 82.2 trillion in 2026.

If the VAT cut were to be extended to all goods and services currently taxed at 10%, the potential revenue loss could balloon to VND 167 trillion (USD 6.6 billion) over the same period—posing a risk to fiscal stability and public debt management.

“We must ensure the sustainability of national finances,” Minister Thắng said. “Expanding the VAT cut to all goods could encourage consumption of products we should actually limit—like those subject to special consumption taxes. This could conflict with broader development and environmental goals.”

Policy Duration and Economic Strategy

While some lawmakers called for either a shorter or longer timeframe, the government opted for a 1.5-year duration, arguing it strikes the right balance between stability and flexibility. The longer policy window is expected to give businesses more predictability and stimulate growth in line with Vietnam’s 10-year socio-economic development strategy (2021–2030).

Minister Thắng added that the VAT cut is designed to help the country reach GDP growth of 8% in 2025 and lay the foundation for double-digit growth from 2026 onward.

However, he also stressed that this reduced VAT rate is temporary and does not reflect a shift in long-term tax policy. Vietnam still aims to consolidate its tax system by gradually moving toward a unified VAT rate and possibly increasing it in the future, in line with broader fiscal reforms.

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Source: Vietnam Insider