Tax Proposal: Application of 10 Trillion Dong Deduction to VAT

Key pointsThe Vietnam Tax Consulting Association has proposed applying a deduction of 10 trillion dong in tax calculations. Currently, businesses with revenue below 10 trillion dong are exempt from both personal income tax and value-added tax (VAT), but those exceeding this threshold are subject to VAT. This proposal would require businesses to collect VAT from the outset, leading to potential tax liabilities on past revenues once they surpass the 10 trillion dong mark, raising concerns about increased economic burdens. The Ministry of Finance has indicated the need for consistency in VAT application and has shown a cautious stance towards the proposal.
Business impactIf implemented, this proposal could complicate tax calculations and increase financial burdens, particularly for small businesses. Japanese companies operating in the Vietnamese market may need to reassess their tax strategies.

Key pointsVietnam has amended its land expropriation compensation system, mandating the calculation of income loss. This institutionalizes support for the livelihoods of farmers and small businesses, marking a significant change for the Vietnamese economy, which continues to expropriate agricultural and industrial land.
Business impactThe transparency of the land expropriation system may enhance predictability in land acquisition, but the increased compensation could raise initial land acquisition costs. Japanese companies need to monitor this change and reflect it in their business plans.

Key pointsA proposal has emerged in Venezuela to abolish its currency, the bolivar, and adopt the dollar as legal tender. This move represents a case of a country suffering from hyperinflation relinquishing its currency sovereignty, providing insights for Vietnam's monetary policy. The Vietnamese dong continues to decline, reaching historically low levels against the dollar.
Business impactJapanese companies entering Vietnam may find that the depreciation of the dong lowers local production costs, but it also leads to a reduction in profits and dividend remittances when converted to yen. Establishing a system to hedge against exchange rate risks becomes increasingly important.

Key pointsThe conflict between US Fed Chairman Powell and President Trump has reignited, increasing speculation about rate cuts. This situation is drawing attention to its potential effects on the Vietnamese economy and investment environment, particularly regarding foreign investor inflows into the VN-Index.
Business impactJapanese companies need to be cautious as US interest rate trends can affect currency costs and funding environments. A depreciation of the dong could benefit export-oriented companies, while increasing costs for those with local currency-denominated debts.

Key pointsThe Deputy Minister of Finance of Vietnam has stated the commitment to equal treatment and protection of rights for foreign investors, prioritizing the attraction of high-quality capital. This is expected to enhance the investment environment in Vietnam and provide reassurance for foreign investors, especially with the upcoming FTSE upgrade.
Business impactFor Japanese companies, the strengthening of foreign investment protection serves as a reassurance for business continuity and supports the diversification of supply chains. The formalization of investor protection is likely to contribute to positioning Vietnam as a China Plus One hub.

Key pointsThe Vietnamese Ministry of Finance is accelerating bond issuance with a target of raising 50 trillion dong (approximately 3.03 billion USD) annually. This initiative aims to secure funding for infrastructure investments and public projects, with an expected rise in short-term bond yields. The increase in bond issuance may impact the supply and demand for funds in the Vietnamese economy.
Business impactJapanese companies need to be cautious as fluctuations in bond yields directly affect financing costs, particularly for local subsidiaries in the manufacturing sector. It is essential to monitor changes in the interest rate environment and reassess financing strategies.

Key pointsThe Vietnamese stock market is anticipating an upgrade from FTSE scheduled for September 2026, which could facilitate an influx of investment capital. Changes in market structure are expected, particularly with increased interest from foreign investors. The FTSE upgrade represents a significant milestone for the Vietnamese economy.
Business impactJapanese companies should closely monitor market changes associated with the FTSE upgrade and consider revising their investment strategies. It is crucial to understand the trends of foreign investors to capitalize on opportunities for capital inflow.