The fertilizer industry struggled during 2016 due to unfavourable conditions such as decreasing demand, rising competition and unfavourable tax policies. However, some significant changes in tax policies will result in pros and cons for the fertilizer industry during 2017. To assist those of you interested in doing business in Vietnam within this vertical, we have provided a brief assessment of tax policies which will affect the fertilizer industry in 2017.
Assessment: Chinese fertilizer imports account for 46% (by volume) of the total import in Vietnam. Hence, this new policy will significantly impact domestic import demand in 2017. DAP and Urea will witness the largest changes, as China reduced the Urea and DAP export tariffs to 0%; (DAP and Urea account for 35.4% and 9.89% of the total Chinese fertilizer exports to Vietnam). We expect that some northern fertilizer companies such as DAP – Vinachem Ltd and Lam Thao Fertilizers and Chemicals JSC (LAS – HNX) could suffer the most from this new policy.
Assessment: In the Eurasian Economic Union, Russia is the most active in trade of fertilizer products with Vietnam, accounting for 9% of total fertilizer imports to Vietnam. Potash is the largest imported fertilizer product from Russia (215 thousand tons), followed by NPK and DAP (60 thousand tons and 25 thousand tons, respectively). Due to the small size and the structure of items focused on potassium (Vietnam only imports, and can not produce potash), we believe that this policy will insignificantly impact the domestic fertilizer industry.
Assessment: According to our sources, the state basically agreed with the MOIT and Vietnam Fertilizer Association about the change in tax policy in a manner that will be favorable for fertilizer companies. If fertilizer products are put into the category subject to VAT of 0%, the tax burden of domestic fertilizer companies will be greatly reduced. In this case, DPM and LAS could be considered the strongest beneificaries of this new tax policy.
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