As Vietnam's coffee sector navigates a period of robust global demand and production recovery, a recent policy shift has introduced new challenges. Effective from 1 July 2025, the Vietnamese government has reimposed a 5% Value-Added Tax (VAT) on unprocessed agricultural products, including green coffee beans, under the new Law on Value-Added Tax 48/2024. This marks the end of a 12-year exemption period that began in 2013, aimed at supporting the industry's growth. For Australian roasters reliant on Vietnamese robusta and arabica beans, this development could influence supply chains, pricing, and export dynamics. Drawing on insights from industry associations and economic analyses, this article explores the background of the change, its broader implications, and specific effects on prices and exports, providing an educational overview to aid informed decision-making.
While the policy aims to enhance fiscal transparency and curb tax refund abuses, it has sparked concerns among exporters about increased operational burdens. As of 14 August 2025, the Vietnam Coffee and Cocoa Association (VICOFA) has petitioned the Prime Minister for an exemption on exported green beans, highlighting potential risks to competitiveness. This post focuses on these key aspects, offering professional insights into how the VAT might reshape Vietnam's coffee landscape in the coming months.
Background on the VAT Reintroduction
The reimposition of the 5% VAT stems from amendments in the VAT Law, which took effect on 1 July 2025. Previously, under the 2008 VAT Law, unprocessed products like green coffee beans were taxed at 5%, but an exemption was granted in 2013 to alleviate financial pressures on farmers and exporters during a period of market volatility. The exemption encouraged investment in production and exports, contributing to Vietnam's rise as the world's leading robusta producer.
The new law reverses this for unprocessed items, classifying green coffee beans—harvested, dried, and hulled but not roasted—as taxable. The rationale includes addressing fraudulent VAT refund claims, where some entities exploited the system by over-reporting exports or under-reporting domestic sales. Additionally, it promotes value addition by allowing businesses to reclaim the 5% VAT on processed products, such as roasted or instant coffee, potentially incentivising domestic processing.
For context, Vietnam's coffee exports in 2024 reached 1.32 million tonnes, valued at US$5.48 billion, with robusta dominating the market. Projections for 2025 suggest revenues could exceed US$6 billion, driven by higher global prices and increased yields. However, the VAT change arrives amid other pressures, including climate challenges and international tariffs, such as the US's 46% duty on Vietnamese coffee imports.
Implications for the Coffee Industry
The VAT reintroduction has multifaceted implications, particularly for smallholder farmers and exporters who form the backbone of Vietnam's coffee supply chain. Firstly, it increases administrative complexity. Exporters must now navigate VAT invoicing and refund processes, which could delay cash flows and tie up capital—critical in an industry with thin margins. VICOFA's petition, submitted on 28 July 2025, argues that without an exemption for exports, the tax could exacerbate these issues, leading to reduced investment in sustainable practices like irrigation or pest management.
On a positive note, the policy could drive industry maturation. By favouring processed exports, it encourages diversification beyond raw beans, aligning with global trends toward specialty and traceable products. For instance, businesses investing in roasting facilities might offset the VAT through refunds, potentially boosting higher-value exports. This shift could enhance Vietnam's competitiveness in markets like Australia, where demand for premium, ethically sourced coffee is growing.
However, critics warn of unintended consequences. The added tax burden might discourage small exporters, consolidating the market among larger players and reducing overall output diversity. Combined with external factors like weather variability and tariffs, this could strain the sector's resilience.
Effects on Prices
One of the most immediate concerns is the potential upward pressure on prices. The 5% VAT effectively adds to production costs, which exporters may pass on to buyers to maintain profitability. In the short term, this could elevate export prices for green beans by a similar margin, especially if refund processes are inefficient. For Australian roasters, who imported significant volumes from Vietnam in 2024, this might translate to higher wholesale costs, potentially affecting retail prices for blends reliant on robusta.
Global coffee prices are already elevated due to supply constraints elsewhere, with robusta futures hitting record highs in mid-2025. The VAT could amplify this, particularly if it leads to stockpiling or reduced supply. However, if the petition succeeds and exports are exempted, price impacts might be minimal, limited to domestic transactions.
Longer-term, the policy might stabilise prices by promoting efficiency. Encouraging processing could reduce reliance on volatile raw bean markets, leading to more predictable pricing for value-added products. Analysts project that without exemptions, average export prices could rise by 3-5% in 2025/2026, depending on global demand.
Impacts on Exports
Exports, a cornerstone of Vietnam's economy, face potential disruptions from the VAT. In 2024, coffee shipments generated US$5.48 billion, with key markets including the EU, US, and Australia. The tax could hinder competitiveness, as competitors like Brazil or Indonesia operate without similar domestic levies on unprocessed exports. VICOFA estimates that without relief, export volumes might stagnate or decline by 5-10% in the latter half of 2025, as higher costs deter buyers.
Bureaucratic hurdles, such as delayed refunds, could slow export processing, leading to supply bottlenecks during peak harvest seasons. This is particularly relevant for robusta, which comprises 95% of Vietnam's output and is sensitive to timing in global blends.
Conversely, the policy might foster export growth in processed forms. For example, Algeria's recent import tax reductions on Vietnamese coffee could benefit roasted exports, where VAT refunds apply. If the government responds to industry calls, an exemption could preserve export momentum, supporting projections of over US$6 billion in 2025 revenue.
Outlook and Industry Responses
As the 2025/2026 harvest approaches, the VAT's full effects remain uncertain, pending any policy adjustments. VICOFA's advocacy underscores the need for targeted exemptions to safeguard exports, while broader reforms could accelerate sustainability and value addition. For Australian roasters, monitoring these developments is key to securing stable supplies.
In summary, while the 5% VAT aims to streamline taxation, its implications could raise prices and challenge exports unless mitigated. Those sourcing Vietnamese green coffee beans may benefit from exploring flexible arrangements to navigate potential volatility. Contact specialists for detailed quotes or samples to align with your roasting needs.
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