Ministry proposes corporate income tax be slashed to 15-17 percent

Hanoi (VNA) – The Ministry of Finance (MoF) estimated that the reduction and exemption of the corporate income tax may lead to a decline of some 9.2 trillion VND (395.29 million USD) in the State budget revenue each year.

The corporation income tax for small- and medium-sized enterprises (SMEs) has been proposed to be slashed from 20 percent to 15 – 17 percent, which may lead to a drop of trillions of VND in the budget revenue but will generate long-term benefits.

The MoF recently included this content in the Government’s draft decree on the building of a draft resolution of the National Assembly on some policies relevant to the corporation income tax to support and develop SMEs.

15-percent tax for firms with less than 3 billion VND in revenue 

Under existing regulations, SMEs are subject to the same tax rate imposed on all types of businesses, 20 percent.

However, the MoF cited foreign experience as showing that many countries have issued support policies and programmes, including tax policies, to create favourable conditions for SMEs to grow.

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This ministry said many countries have stipulated that SMEs are subject to a tax rate lower than the general one. For example, in China, the general corporate income tax is 25 percent, but it is only 20 percent for small firms.

Some other nations like the Republic of Korea (RoK), the Netherlands or Brazil do not have such a regulation, but the corporate income tax there increases in accordance with the parts of revenue subject to the tax.

For example, the RoK levies a tax rate of 10 percent on the first 200 million won subject to the tax, 20 percent on the subject revenue part that is between 200 million won and 20 billion won, and 22 percent on the subject revenue part that is higher than 20 billion won. Meanwhile, the Netherlands imposes a tax rate of 20 percent on the first 200,000 EUR in revenue subject to the tax, and 25 percent on the subject revenue part that is higher than 200,000 EUR.

For Vietnam, the MoF said SMEs make up the majority of all businesses and play a particularly important role in developing the economy and ensuring social stability.

To continue facilitating SMEs’ development, the ministry plans to propose the Government seek the parliament’s permission to apply some preferential policies on the corporate income tax. In particular, the tax on SMEs is planned to be decreased to 15 – 17 percent.

Accordingly, the tax rate of 15 percent will be levied on businesses with an annual revenue of less than 3 billion VND and a maximum of 10 employees participating in social insurance each year on average. The tax rate of 17 percent will be applied for those with an annual revenue of between 3 billion VND and under 50 billion VND and a maximum of 100 employees covered by social insurance each year.


Tax on firms deriving from business households to be exempted for two years

Aside from the tax cut proposal, the MoF said to encourage business households or individuals doing business to upgrade themselves to companies, it had suggested a particular policy for them.

The MoF proposed that the corporate income tax on companies deriving from business households or individuals doing business be exempted for two years. After that, if those enterprises invest in the lines of business or regions with tax incentives will continue benefiting from preferential tax rates as stipulated in legal regulations.

After the duration of tax exemption and preferential taxation (if any) is over, they will be subject to the tax rates corresponding to their actual status as stipulated in laws.

Additionally, to create more optimal conditions, the MoF also proposed a particular tax calculation method for businesses with an annual revenue of under 3 billion VND and a maximum of 10 employees taking part in social insurance each year.

The ministry estimated that if the abovementioned solutions are implemented, the budget revenue could be reduced by 9.2 trillion VND every year. Among them, the tax cut could lead to a fall of around 6.5 trillion VND while the tax exemption for two years could result in a drop of more than 2.72 trillion VND annually.

Although the reduction of tax obligations can cause pressure on the State budget balance in the short term, in the long term, it will create conditions for SMEs to boost accumulation, re-investment, production and business activities, which in turn will help raise the State budget’s revenue from the corporate income tax in the following years, according to the MoF’s draft./.