The Vietnamese National Assembly has approved an extension of the value-added tax (VAT) cut, reducing the rate from 10% to 8% until the end of 2026 to support domestic economic growth. This measure, first introduced in 2022 to aid post-pandemic recovery, received over 90% approval for continuation, reports Reuters and The Investor.
The extended VAT reduction will apply to sectors including transportation, logistics, and IT products and services. However, it excludes telecom, finance, securities, insurance, real estate, metal products, mining (except coal), and goods subject to special consumption tax due to their rapid growth rates. The government expects the VAT cut to reduce revenue by VND39.5 trillion (approx. US$1.52 billion) in the latter half of 2025 and by VND82.2 trillion in 2026.
Alongside the VAT extension, Vietnam plans to implement cost-cutting reforms in 2025, which include downsizing agencies and merging provinces and cities. These structural changes are anticipated to affect more than 100,000 workers. Analysts suggest that the VAT cut aims to stimulate consumption and alleviate business pressures amid ongoing challenges from US tariffs. The policy is viewed as a step towards stabilizing the economy and enhancing corporate competitiveness.
Vietnam navigating external opportunities and challenges
Vietnam's economy is set to experience strong growth in 2025, despite facing considerable external pressures. The World Bank projects a gross domestic product (GDP) increase of 6.8%, attributing this to substantial foreign direct investment (FDI) inflows and a robust manufacturing sector. Similarly, Standard Chartered forecasts GDP growth of 6.7%, emphasizing ongoing business expansion and sustained foreign investment as central to the positive outlook.
Nevertheless, these favorable projections are tempered by rising trade tensions with the US. In early 2025, the US government implemented a 46% tariff on Vietnamese imports, citing Vietnam's significant trade surplus with the US as justification. This development presents a serious challenge to Vietnam's export-driven economy, given that nearly 30% of its exports are destined for the US market.
On the domestic front, the Vietnamese government is advancing reforms aimed at transforming the economic model. Efforts focus on reducing dependence on low-skilled manufacturing and export sectors by promoting private sector growth and simplifying administrative procedures. Resolution 68, adopted by the Politburo, underscores the private sector as the primary engine of economic development, with objectives to cultivate globally competitive conglomerates and expand the number of private enterprises to 3 million by 2045.
Article edited by Jack Wu
