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Vietnam to extend VAT cut to boost economy

A farmer harvests rice on a rice paddy field outside Hanoi, Vietnam, on June 7, 2018

Vietnamese lawmakers on Saturday approved a government plan to extend a reduction in value added tax (VAT) on goods and services until the end of this year to boost domestic consumption and production, as its export-driven economy faces headwinds from slowing global demand.

The VAT cut to eight percent from 10 percent, which has been in place since early last year, is not applicable to such services and products as banking, finance and real estate.

The Southeast Asian country is trying to avert a slowdown in growth from weak demand in its key markets, after first quarter gross domestic product expansion slowed to 3.3 percent from 5.9 percent in the fourth quarter of last year.

“The move will boost consumption, and hence supporting business and production activities,” minister of finance Ho Duc Phoc said in a report to the National Assembly last month.

The regional factory powerhouse reported a 12.3 percent decline in exports in the first five months of this year, dragged by shrinking shipments of key products smartphones, electronics and garments.

A VAT cut is expected to boost domestic consumption to compensate for the sharp fall in exports.

The State Bank of Vietnam, the country’s central bank, has so far this year cut its policy rates four times by between 150 and 200 basis points to boost its economy. It last cut the refinance rate to 4.5 percent, the discount rate to three percent and the electronic interbank rate to five percent on June 19.