Market and product

HANOI – Domestic fertilizer enterprises have said though they enjoy a value-added tax (VAT) exemption, they are unable to reduce selling prices of finished products as they are not allowed to deduct the tax paid for materials.

Law No. 71/2014/QH13, which took effect on January 1, 2015, clarifies fertilizer products are entitled to a VAT break. However, as VAT is exempted instead of a reduction to 0%, domestic fertilizer enterprises cannot get tax deductions and this has eaten into the competitiveness of their products.

At a seminar on fertilizer production and trading in Hanoi on Monday, Pham Quang Tuyen, general director of Lam Thao Fertilizers and Chemicals Joint Stock Company, said the company produces 280,000 tons of chemicals and 1.6 million tons of fertilizer products. Every year, the company pays over VND180 billion in tax for materials subject to a tax rate of 5-10%. Such tax payments are not deducted for finished fertilizers due to the VAT break.

“As a result, we have to include such tax payments in our production cost and this leads to an increase of 3.6% in the selling prices of our fertilizer products,” Tuyen said.

Le Quoc Phong, general director of Binh Dien Fertilizer Joint Stock Company, said farmers were excited about VAT exemption applicable to fertilizers as they thought that fertilizer prices would go down but the price had gone up in reality.

Phong explained that fertilizer producers now have to pay a tax rate of 10% for most input materials and if products are free from VAT, tax payments of input materials cannot be deducted.

However, if the law states that fertilizer products are subject to a 0% rate, enterprises can deduct tax payments for materials. This is why the VAT exemption does not help lower production cost as expected.

Meanwhile, imported fertilizers are sold at lower prices than those of domestically-made products as the former enjoy a 5% VAT reduction, hitting sales and production of local fertilizer companies.

“Lam Thao saw fertilizer sales dropping by 16% and fertilizer output falling by 4% in the first nine months of this year,” Tuyen said.

However, enterprises can enjoy tax deductions for their fertilizer exports. Phong said Binh Dien ships abroad US$60-70 million worth of fertilizers per year. So Vietnamese fertilizers are sold to foreign markets at lower prices than on the domestic market.

“Tax policy should support local farmers, but other countries buy these cheap fertilizers so their farm products have a competitive edge over Vietnamese farm products,” Phong said.

Nguyen Hac Thuy, vice chairman and general secretary of the Vietnam Fertilizer Association, said farmers and enterprises do not benefit from the law on tax amendments.

The association estimated that after the law came into force, the production cost of fertilizers picked up 7-7.6% for urea fertilizer, 7.3-7.8% for DAP fertilizer, 6.5-6.8% for phosphate fertilizer and 5.2-6.1% for NPK and organic fertilizer.

Therefore, the law directly reduces the competitiveness of local products compared to imported fertilizers which are now subject to an import tax rate of 6% instead of a 6% import tax and a 5% VAT.

This is the reason why NKP fertilizer imports soared almost 45% to 260,000 tons in the first half of this year compared to only 180,000 tons in the same period of last year.

Therefore, corporate representatives attending the seminar requested the law to be revised and amended.