Consumers making payments at a cash register in Big C Thăng Long supermarket. Experts called for deeper cuts in VAT to boost consumer spending further. — VNA/VNS Photo Trần Việt

HÀ NỘI — The government has recently given the green light to the Ministry of Finance's proposal to extend the VAT cuts of 2 per cent into the first half of 2024.

The VAT cuts were originally intended to stay in force between July 1 and December 31, 2023, but the slow recovery of demand has led to a re-evaluation of the fiscal stimulus. By keeping the cuts in place for six more months, the government aims to kick consumer spending into high gear to reinvigorate the economy.

However, the VAT cuts of 2 per cent are believed to be insignificant to have a real impact on consumer behaviours, according to a survey by Người Lao Động Newspaper.   

Nguyễn Trung Thanh, a respondent, said every time he ordered takeaways from his favourite restaurant, he paid in cash. As the restaurant kept food prices fixed year-round and did not issue invoices after purchase, he had no clue about whether he was entitled to the VAT cuts or not.

Diệp Thanh Tuyền, Manager of the Bông Súng Restaurant Chains, said most of her consumers did not care about the money they could save under the VAT cuts because they dismissed the amount as insignificant.  

Lư Nguyễn Xuân Vũ, Director-General of Xuân Nguyên Group JSC, took a honey bottle of VNĐ100,000 ($4.1) as an example to support the statement. He said a VAT cut of VNĐ2,000 on the bottle was so marginal that it would make no difference to consumers' buying decisions.   

"The minor price difference cannot provide enough motivation for customers to make a purchase," said Vũ.

He urged the government to elevate the VAT cuts to 5 per cent to truly sway consumers to loosen their purse strings. 

Nguyễn Đình Cung, former Head of the Central Institute for Economic Management, went so far as to urge the government to extend the VAT cuts to late 2025 to boost demand. 

He underlined the need to deploy more fiscal measures rather than monetary measures to stimulate the economy for the reason that "few such measures had been put in place to support firms".

Economist Cấn Văn Lực called on the government to accelerate the delivery of VAT refunds to lift firms out of their financial difficulties and sustain economic growth. In his estimation, a one-per-cent increase in domestic demand can create a 0.2-per-cent increase in GDP.   

According to the General Statistics Office of Việt Nam, total retail sales of consumer goods and services hit VNĐ524.6 trillion ($21.4 billion) in September, up 2.4 per cent month-by-month, indicating a recovery in demand.

However, after the back-to-school season, the recovery began to slow down due to families cutting back on spending and a growing number of workers facing the axes. Firms tried every means to boost sales but got little results.

"Because of that, firms need more favourable policies from the government to get through the difficulties and expand their commercial footprint globally," Vũ said.