Under the new regulations of the value-added tax law, unprocessed coffee and rice will be subject to a 5% VAT. However, the Vietnam Food Association (VFA) and the Vietnam Coffee-Cocoa Association (VICOFA) argue that this is placing significant pressure on businesses in terms of capital and procedures. The two associations have petitioned the prime minister to consider removing exported unprocessed coffee and rice from the list of goods subject to VAT to reduce the impact on working capital and improve competitiveness.
In the first 6 months of the year, Vietnam exported over 4.7 million tons of rice, earning 2.45 billion USD. This revenue is considered on track compared to last year's record (9 million tons, 5.7 billion USD).
However, Do Ha Nam, chairman of the VFA, said that businesses are required to pay VAT before exporting, but banks are not disbursing loans to cover this tax, which is straining working capital. "Not only is there a loss of capital, but the subsequent tax refund process is also subject to many obstacles, making it difficult for businesses to manage their cash flow," Nam said.
The VFA is concerned that Vietnam will lose its competitive edge against rivals like Thailand, India, and Myanmar, which do not impose this tax or have faster refund mechanisms.
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Specialty coffee roasting facility. Photo: Hoang Giang |
Specialty coffee roasting facility. Photo: Hoang Giang
The coffee industry is facing a similar predicament. In the first 6 months of this year, Vietnam exported nearly 1 million tons of coffee, earning 5.5 billion USD, a 5% increase in volume and a 66% increase in value. According to Nguyen Nam Hai, chairman of VICOFA, the new regulation is pushing businesses into a similar capital quagmire, potentially leading to market stagnation.
Before 2013, unprocessed coffee was subject to a 5% VAT under the 2008 VAT law. However, due to exploitation of the refund system and difficulties it posed for legitimate businesses, it was removed from the taxable list in 2013. The new law, however, has reinstated the 5% tax on unprocessed coffee.
Hong Chau
