Gov't urged to reduce tax to rescue businesses

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Báo Tuổi Trẻ English - 46 month(s) ago 5 readings

Businesses and experts have proposed that the government should reduce corporate income tax in order to ease the burden on businesses in this difficult period. They stress that reducing tax is the growing trend in the world and that tax reductions will make Vietnam more competitive.

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Tax reductions once restored businesses to life

In 2009, after Vietnam went through a difficult year with high inflation and economic downturn, businesses faced a lot of challenges.

At the time, the government launched a general economic stimulus package, in which tax remission was an important part.

The government decided to delay personal income tax collection, and then exempted personal income tax, cut corporate income tax by 30 percent, and extended the deadline for corporate income tax payment for nine months, applied to small and medium enterprises and some other businesses, such garment and footwear enterprises.

It also decided to cut VAT by 50 percent on the 19 most affected groups of products.

Preliminary statistics showed that by August 31, 2009, 125,000 enterprises and 937,000 subjects could enjoy tax preferences. In the first nine months of 2009, 14.7 trillion dong worth of tax was exempted. The figure was estimated to reach 20 trillion dong in the whole year of 2009.

The Ministry of Finance, when reviewing the tax reduction and exemption programme, pointed out that the policies could help stimulate production and encourage export, thus helping ease the damage caused by the economic downturn.

The proposal to reduce and exempt tax has once again made by experts as businesses are facing many difficulties. In fact, the government’s resolution No 11 on the measures to curb inflation and stabilize the macro economy, has also mentioned tax reduction and exemption, or tax payment deadline extension as one of the measures that can be taken.

However, experts say that management agencies have only made the proposals relating to VAT or import-export tariffs, while they have not touched the corporate income tax.

Meanwhile, they have pointed out that it is necessary to consider reducing or exempting that kind of tax at this moment, stressing that the currently applied 25 percent tax rate is higher than the tax rates applied in other countries and does not fit the current conditions.

Tax cutting is an inevitable trend

Dao Ngoc Chuyen, Head of the Dao & Associates Law Office, said that tax cuts will “do more good than harm”, even though the sums of money the state budget can collect from businesses will decrease.

The tax reductions will allow businesses to have more money for re-investment, and once they make fat profit, they will pay more in tax to the state budget.

Nguyen Thi Cuc, Chair of the Vietnam Tax Consultancy Association, also thinks that it is necessary for Vietnam to slash tax in order to maintain Vietnam’s competitiveness in attracting foreign investment. Moreover, as Vietnam is now a member of the World Trade Organisation (WTO), the subsidization through tax preferences will be gradually removed. Therefore, the new policies on lower tax rates will be helpful.

Businesses will be able to cut down expenses, increase transparency and increase their competitive edge.

Vietnam’s current corporate income tax rate is 25 percent, which is higher than South Korea (20 percent) and Singapore (19 percent).

It is now a growing tendency in the world that international businesses try to pay tax in the countries that impose lower corporate income tax rates. Experts have pointed out that the high corporate income tax rate in Vietnam is one of the reasons that prompt foreign invested enterprises to make a so-called “price transfer” in Vietnam.

With the “price transfer” trick, the Vietnamese subsidiaries of international groups report losses in Vietnam, while other subsidiaries of the same international groups declare profits in other countries, which set up lower corporate income tax.

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