A worker arranges bricks at Thanh Phuc Mechanics and Building Materials JSC in northern Hai Phong city (Source: VNA)
Hanoi (VNA) – Entrepreneurs are hailing a national plan to reduce corporate income tax for small- and medium-sized enterprises from 20 percent to 17 percent starting next year.

In a recent proposal submitted to the Government, the Ministry of Finance said businesses making less than 20 billion VND (893,000 USD) in revenue per year would enjoy the lower tax rate for four years, from January 1, 2017.

This was among the incentives included in a draft resolution of the National Assembly on tax measures to help domestic business improve competitiveness as Vietnam integrates into the global economy.

The ministry expects this policy to benefit some 430,000 small- and medium-sized enterprises (SMEs), or 86 percent of 500,000 SMEs operating nationwide.

“The tax reduction will help us save hundreds of million of VND anually, and we will use this amount to invest more in human resources and product development,” said Tang Van Khanh, director of the investment firm K&G Vietnam.

Khanh told Vietnam Television (VTV) that this was important for his company, which was meeting financial difficulties four years after its establishment.

Tong Quang Huy, director of the paper company Hai Tien, told the Voice of Vietnam (VOV) that SMEs were facing obstacles in production and distribution. With the tax reduction, they would have more resources to expand.

“Supermarkets are seeing fierce competition from foreign retailers. We are very glad about a tax drop,” Ta Minh Son, who directs Tu Son supermarket in the southern province of An Giang, told VTV.

Le Thanh Man, deputy general director of the trading firm Nguyen Hue in An Giang, told the television “It is good that the authorities see the point. Such a policy is likely to stimulate business growth and efficiently growing businesses will foster tax development.”

Pham Dinh Thi, head of the ministry’s Tax Policy Department, said SMEs with annual revenues of up to 20 billion VND currently contribute a combined 2.46 trillion VND to the State budget.

When the corporate income tax is slashed to 17 percent, State budget revenues will decline by some 473 billion VND a year.

“We see such a tax cut as reasonable in the current context. It will create certain motive for enterprises to develop while not affecting the State budget, which is bearing burdens,” Thi said.

The ministry said the corporate income tax had already been sharply cut over nearly two decades. It was 32 percent in 1999, 28 percent in 2004 and 25 percent in 2009, before falling to 22 percent in 2014 and 20 percent this year.

The current level is significantly lower than a rate of 30 percent in the Philippines and 25 percent in China.

A law on supporting SMEs, which is being drafted by the Ministry of Planning and Investment and expected to be submitted to the National Assembly in October, defines SMEs as companies making less than 100 billion VND in revenue per year.

Despite this, the Ministry of Finance said corporate income tax should only be given to firms making less than 20 billion VND in annual revenue in order to avoid a significant decrease in budget collection.

It said budget collection could drop by 1.5 trillion VND each year if the 17 percent tax was applied to businesses making less than 100 billion VND in annual revenue.

“Tax is not the main point. It is important for us to make sure the business environment is equal for enterprises to compete healthily,” Thi said.

Official data indicates SMEs contribute some 46 percent to Vietnam’s gross domestic product and 31 percent of all tax revenues, employing 60 percent of the country’s workforce.-VNA