Gov’t backs lower income tax for small and micro enterprises
Gov’t backs lower income tax for small and micro enterprises
The Government has thrown its support behind the Ministry of Finance’s proposal to slash the corporate income tax (CIT) to 15-17% for small and micro enterprises compared to the common 20% now.
Under the proposal, enterprises which have an annual revenue of less than VND3 billion (US$130,000) and no more than 10 full-time employees registered with social insurance will be entitled to a 15% CIT reduction.
Meanwhile, enterprises with annual revenues ranging from VND3 billion to VND50 billion (US$2.15 million) and fewer than 100 workers will enjoy a tax rate of 17%.
The CIT incentive rates will not apply to subsidiaries of such enterprises to prevent tax evasion, according to the ministry.
For enterprises that have transformed from household businesses, the ministry has suggested a two-year CIT exemption, from the time they first report their taxable income.
Such households will have to meet two requirements. They need to have registered their business and been operational, in line with prevailing regulations, and must be engaged in production and business activity for at least one year to be eligible for a business registration certificate.
Pham Dinh Thi, the head of the Tax Policy Department under the ministry, was quoted by Thanh Nien newspaper as saying that the proposal will be sent to the National Assembly Standing Committee for feedback.
If given the go-ahead, the Government will submit it to the legislative National Assembly for consideration at its eighth sitting, which is slated for November this year.
The ministry has estimated that if the proposal is approved, the amount of tax cuts will amount to around VND9.2 trillion (US$395 million) per year.
The tax break would create pressure on the State budget in the short term. However, the policy would stimulate the development of the domestic business community since small and micro enterprises are likely to expand their investment and production activities, thereby raising tax revenue in the long term, according to the ministry.
In a recent report on Vietnam’s economic outlook, the International Monetary Fund has stated that the Government’s commitment to private sector-led growth has helped improve the business climate.
Vietnam’s regulatory quality and ease of doing business has been generally improving over the years, reflecting the elimination of numerous administrative measures to level the playing field between the private sector and the State.
However, structural problems in the land and credit markets and the still-large State-owned enterprise sector remain obstacles to the private sector.
Moreover, while the regulatory burden has lightened significantly, implementation challenges, especially at the local and provincial levels, remain to be dealt with.
Significant regulatory barriers to foreign and domestic private sector ownership should be further reduced to strengthen the links between domestic enterprises and firms with foreign investment, improve competition, and raise productivity through the transfer of, and investment in, technology and expertise in the domestic economy.
