Tax cut to boost number of efficient firms to 1 million

Hanoi (VNA) – The Government will submit a tax reduction plan to the National Assembly (NA) this month, which aims to meet a target of increasing the number of efficient enterprises in the country to one million by 2020.

Pham Dinh Thi, Director of the Ministry of Finance’s Tax Policy Department, said the tax reduction plan is part of a Government draft resolution on clearing obstacles to boost the development of enterprises, which will be tabled during the NA’s second session that starts on October 20.

Under the draft plan, the finance ministry proposes cutting corporate income tax for small- and medium-sized enterprises (SMEs) as well as start-ups from the current 20 percent to 17 percent between 2017 and 2020.

Thi estimated that the tax reduction will lead to an insignificant drop in State budget revenues. It will drop by approximately 473 billion VND (21.11 million USD) per year if based on the current Law on Corporate Income Tax, firms with a turnover of less than 20 billion VND per year are exempted from the tax.

The revenue drop will be as much as 1.5 trillion VND per year if the draft Law on Support for Small- and Medium-sized Enterprises is passed as it decrees that firms with a turnover of less than 100 billion VND are exempted from the tax.

"However, if the tax cut policy is approved, it will ensure that there are thousands of newly established enterprises every year," Thi said. "The contribution of these new firms to the State budget will help offset the revenue drop and over time will increase the State budget revenue."

So far, to meet the target of increasing the number of efficient enterprises in the country to one million, the Government has issued a resolution on supporting and developing firms till 2020 and asked the Ministry of Planning and Investment to create a law that supports the growth of SMEs.

In the draft resolution, the finance ministry also proposes allowing enterprises to use profits from their real estate projects to offset losses in other industries and sectors. Thi said the Government wants to encourage firms to invest in agriculture, a vulnerable sector because of its dependence on the weather. The proposal will encourage companies to invest in the agriculture.


Dang Duc Thanh, Chairman of the HCM City Economists Club and member of the Vietnam Chamber of Commerce and Industry (VCCI)’s Executive Committee, said to fulfill the one-million target by 2020, he said, the country needs the comprehensive and thorough participation of all ministries, sectors and localities to build a conducive business environment that will create a start-up revolution in Vietnam.

Besides building a favourable business environment, Thanh recommended that the Government should encourage competitiveness by supporting the set-up of cooperation chains. Firms themselves, however, will also have to restructure to become more competitive, he said.

According to statistics from the VCCI’s Vietnam Annual Business Report 2015, there are around 513,000 firms in Vietnam at the end of 2015, which was very low when compared with the country’s population of more than 90 million. To meet the world’s average ratio, Vietnam needs to have two million operational firms, VCCI said.

Besides, the existing companies are also not doing well. Of the 513,000 firms, only 42 percent made profits and the remaining broke even or make losses.

The number of firms that had to shut down in the first nine months of this year was 8,365, up 20.2 percent year-on-year, shows data from the Ministry of Planning and Investment’s Business Registration Management Agency. Most of these firms are small, with a registered capital of less than 10 billion VND each.-VNA