The move by legislators will be a blow to the foreign-dominated e-commerce industry, which has benefited from VAT exemption and rules in place since 2010 that stipulate imported goods worth under 1 million dong ($40) are free from duties.
It comes weeks after the Communist-run country threatened to block Chinese online retailers Shein and Temu amid concerns about unfair competition due to their deeply discounted prices.
That amendments passed on Tuesday will apply from July 1 next year and will see the maximum rate of the standard VAT rate increase to 10% from 8% currently.
Vietnam’s fast-expanding $22 billion e-commerce market largely relies on cheap goods from neighbouring China, with up to 5 million orders placed by shoppers on average every day, according to state media reports, citing a lawmaker.
Among the leading platforms in Vietnam are Singapore’s Shopee, and China’s Lazada and TikTok.
Discover the stories of your interest
Those incumbents have been joined by fast-fashion retailer Shein and more recently by Temu, owned by Chinese e-commerce giant PDD Holdings, which began selling in Vietnam in October to capitalise on its online shopping boom. The National Assembly on Tuesday said that since the tax exemption on low-cost goods has no expiry date, it urged the government to issue a decree to scrap it, which would enable the amended VAT law to be effective in ensuring taxes were fully collected from e-commerce firms.
Temu and Shein are facing increased scrutiny and challenges elsewhere in Asia, amid growing concerns that higher U.S. tariffs on Chinese goods threatened by the upcoming Trump administration could lead China to flood Asian countries with its overcapacity of ultra-cheap items.
The amended law will also impose a 5% VAT on fertilisers, which are not currently taxed, which could impact farmers in the world’s second-largest coffee exporter and third-largest shipper of rice.
“The fertiliser tax will raise input cost for farmers, including rice farmers, and will ultimately leave Vietnamese rice less competitive on the international market,” a trader based in Ho Chi Minh City said.
