About 430,000 enterprises to benefit from reduction in the corporate income tax rate to 17%

Manufacturing toys for export in Matrix Vinh Company Ltd. Photo: Hồng Nụ.

Necessity

The Ministry of Finance is preparing to draft a Resolution for the National Assembly on measures and proposals to lower the corporate income tax rate for medium and small sized enterprise from 20% down to 17%.

Explaining the introduction of such an proposal, Mr. Pham Dinh Thi said that many tax related solutions had been implemented and brought about significant achievements to improve a business environment and remove traders’ difficulties over the past years.

2016 is the first year of implementing the Plan of Economic and Social Development for the 5 year period from 2016 to 2020, and also the year of great events in the country. In addition to advantages for economic and social development, it is also forecast that there will be some difficulties and disadvantages in 2016.

In order to further assist enterprises, the Government has issued Resolution No. 35/NQ-CP with solutions on tax policies and management. The tax measures have been introduced with the aim at developing enterprises by 2020 in the light of the Government’s Resolution.

In order to promote enterprises in general, medium and small sized enterprises would be the objects to which developing countries are giving priorities because the enterprises are themselves solving the labour problem but are also the most vulnerable, particularly in the context of a changing economy” Mr. Thi added

International experience and practice show that medium and small enterprises are the targets of economic development policies in developing countries, of which tax supporting policies are the most commonly used tools. For instance, China is applying the preferential tax rate of 20% for small enterprises. Meanwhile, the common tax rate is 25%, especially in the period 2015 – 2017, enterprises with low income would benefit from a lower rate.

Similarly, in Thailand, the common corporate income tax rate is 20% but a lower tax rate is imposed on medium and small enterprises. In the period 2016 -2017, a company having income below 300,000 baht (8,500 USD) is free of corporate income tax; a company with income from 300,000 baht to 3 million baht (8,500 – 85,000 USD) will benefit from a tax rate of 10%, others wil pay the standard rate.

Like other nations, Vietnam’s medium and small enterprises play an important role in economic and social development. The ratio in Vietnam accounts for a huge proportion of the total enterprises (97%-98%). These enterprises are considered a driving force and pillars of the economy. Hence, further study for proposals of a reasonable corporate income tax rate is essential to ensure promotion of medium and small enterprises.

About 430,000 enterprises would again benefit

At present, studying international practice, the Ministry of Finance knows that each country has different criteria in terms of income, labour, property, and some countries even apply three criteria. In the proposal by the Ministry of Finance, the criteria to determine medium and small enterprises are the same as those regulated in former resolutions by the National Assembly. That means a company with an income up to 20 billion dong in the preceding year would be defined as a medium or small enterprise.

Such enterprises make up 85%-86% of the total number of running enterprises, i.e. approximately 430,000 enterprises. According to the Director of the Tax Policy Department, these enterprises contribute about 2,470 billion dong to the State budget annually. However, reduction of the corporate income tax by 3% would lead to a decrease in about 473 billion dong of State revenue. . Sharing more about the criteria to determine beneficiaries, Mr Thi said that the Ministry of Planning and Investment was assigned by the Government to study the Law on supporting medium and small enterprises. There were several opinions of the criteria of income of 100 billion dong and a labour force of 300 employees.

Nevertheless, as calculated by the Ministry of Finance, the number of beneficiaries will rise to 96% - 97% of the total amount of running companies and reduce the State revenue by 1,500 billion dong if such criteria are applied.

“Corporate income tax rate reduction for medium and small enterprises as suggested in the Draft would contribute to encourage enterprises, promoting production and business, enhancing their competitiveness and minimizing impacts on Sate revenue” confirmed Mr. Thi.