Finance Minister says state budget exceeding targets, despite CIT cut
Given the implementation of the amendment to Vietnam’s Law on Corporate Income Tax, Deputy Finance Minister Truong Chi Trung spoke to VIR’s Manh Bon about how the law will strengthen Vietnam’s economy.
How has the amended Law on Corporate Income Tax affected the economy six months after being implemented?
GDP increased 5.25 per cent in the second quarter of this year, 0.16 per cent higher than quarter one and in the first half went up 5.18 per cent, higher than 4.9 per cent in 2013 and 4.93 per cent in 2012.
Also in the first half of this year, 37,315 new businesses were established with registered capital of VND231 trillion ($11 billion), up 19 per cent on-year. Export and import activities also showed positive results, with around $140.44 billion in net exports, up 13 per cent against 2013.
These results are a result of efforts to reduce hardships faced by firms, given a tougher economy, including reducing the corporate income tax from 25 to 22 per cent and implementing a 20 per cent income tax on medium and small businesses that earn less than VND20 billion ($950,000) a year.
Which sectors of the economy have been most prosperous since the Law on Corporate Income was amended?
The corporate income tax reduction has had a positive impact on all sectors, of which non-alcoholic drinks, textile, transportation, mining, and communication have seen the strongest results.
These sectors are those in which Vietnam has competitive advantages, strong domestic consumption, and high potential for export.
Applying a 20 per cent income tax on smaller firms is to encourage their growth and development. The law also allows firms to spend more on advertising to expand their marketshare. The law now allows firms to raise their advertising and promotion expense from 10 per cent to 15 per cent of total revenue, and has removed some restrictions.
How has the tax reduction affected the state budget?
As we forecasted, the tax reduction will result in a loss of VND14.064 trillion ($670 million) for the state budget, but in the first six months we actually saw the budget grow thanks to the number of firms pushing up their investments and expanding their business.
As reported, the state budget has generated VND280.653 trillion ($13.36 billion) so far this year, with the exception of crude oil, up 18.4 per cent against last year and meeting 52 per cent of the annual target.
Given these optimistic indicators, do you think the state budget income will hit the 2014 target?
Despite the tax reduction, in the first half of this year state enterprises contributed VND91.273 trillion ($4.35 billion) to the state budget, fulfilling 52.5 per cent of the annual target and up 33.3 per cent against 2013. FDI firms contributed VND61.458 trillion ($3 billion), 55 per cent of the target and up 15.3 per cent on-year. Private firms have paid VND56.982 trillion ($2.7 billion), 53 per cent of the target and up 10.5 per cent on-year.
The Law on Personal Income Tax adjusted taxable income from VND4 million to VND9 million per month, and the deduction for each dependent from VND1.6 million ($76) per person per month to VND3.6 million ($171) per person per month. Despite this adjustment, state budget inflow from income tax was VND47.384 trillion ($2.25 billion), down only two per cent on-year.
Given this context, not only will the state budget target be reached, but the tax and customs sector alone plans to exceed its goal by 8-10 per cent.
We can say that the amended laws, in particular the Law on Corporate Income Tax, have helped improve the economy, promoted investment and production, increased the state budget, assured social welfare and national security, and increased debt-paying ability.