Draft resolution on tax exemption and deduction to support enterprise development

17% corporate income tax incentive

The Finance Ministry proposes to apply a corporate income tax rate of 17% from 1 January 2017 to 31 December 2020 for SMEs with a total annual turnover of less than 20 billion vnd. The turnover is used as a basis for determining the enterprises entitled to the tax rate of 17% at this point, from the preceding year.

According to the interpretation of the representatives of the Tax Policy Department - Ministry of Finance, in Vietnam, SMEs account for the majority of total operating businesses and play an indispensable role in economic development as well as social stability. Therefore, in the process of implementation, tax policy should be taken into consideration. In fact, those above have enjoyed the preferential income tax rate of 20% earlier than the roadmap by 2.5 years (from 1-7-2013 instead of 1-1-2016) in comparison with others.

Further reducing the general tax rate for SMEs to 17% for the period 2017-2020, is equivalent to preferential tax rates applied to new investment projects in areas with economic and social difficulties and with even greater motivation than 2014-2015, has enabled SMEs not only to accumulate capital and reinvestment, but also broaden production and business capacity as well.

On the other hand, this process doesn’t create much impact on the State budget revenues as those SMEs only contribute small revenue volume to the State budget.

Not only SMEs, but start-up businesses also benefit from similar incentives of 17% corporate income tax rate for 2017-2020. According to the Ministry of Finance, the concept of corporate entrepreneurship, particularly innovative start-up businesses (start-ups) has not been specified in the legal framework. However, according to international experience, it is the individuals, groups of individuals, organizations and businesses in the process of materializing their business innovations and building their business image that gain high added values and rapid growths. Therefore, unlike traditional enterprises, it is necessary for start- ups to invest in technology research and innovation in order to control potential risks as much as possible. If start-ups can overcome such challenges, they can get a lot of economic benefits and even change consuming habits.

A Tax Policy Department representative said: Basically, start-up enterprises are usually SMEs, therefore, the uniform tax rate set to submit to the National Assembly Government should be17%. Besides, to ensure consistency and to comply with the characteristics of start-up enterprises whose income comes mainly from science and technology research, start-up businesses are exempted from such duties as: income from capital transfer, transfer of capital contribution, income from transfer of property, income from transfer of investment projects, transfer of rights to participate in investment projects, transfer of exploration and exploitation of minerals, income from the production, sales outside of Vietnam; Income from searching operations, exploration and exploitation of oil, gas and other rare resources and income from mining activities as well as business income from services are subject to special consumption tax under the provisions of the Law on Special Consumption Tax.

Late payment with substantive reasons will not attract fines.

The removal, freezing of tax debts and fines for late payment for some enterprises has attracted much interest.

According to representatives of the Tax Policy Department: Under the provisions of the law on tax administration, from 1 January 2011, taxpayers who have not been refunded their initial investment capital can extent the tax payment schedule up to 1 year without paying any charges. However, this policy will not be applied to cases arising before 1 January 2011. To conform with reality, the Ministry of Finance has submitted to the Government to remove late tax payments of enterprises supplying goods and services paid by the State budget or from the capital expenditure of the State budget, but have not yet been paid . Accordingly, late payments to be removed as of 31 December 2015 total 542.525 billion vnd.

In the conversation with the reporter of Customs Magazine, Mrs. Nguyen Thi Cuc - Chairman of the Vietnam Tax Consulting confirmed that this would be the solution to save businesses in danger of insolvency or bankruptcy because in the last period, the interest rate for late payment penalties was at very high rate and even at 0.05% / day, particularly for more than the 90-day loans, the interest rate for late payment was at 0.07% / day. As a result, the actual penalty for late payment was larger than the original debt, and this would push companies to sell assets to repay debt and go bankrupt. Therefore, if companies can manage to pay the original debt, the application of removing late tax payment can be a reasonable policy.

Remove debt for bankrupted enterprises of 7.421 billion VND

Besides removing the fine for late payment, those who are actually insolvent, went bankrupt, ceased business, or have frozen tax debt or similar cases arising in the period from 1.1.2014 to 31-12-2015, will also be subject to tax exemption. Analysis of specific cases from businesses and summary reports on the implementation of the Bankruptcy Act 2004 revealed that 49 out of 63 courts received and dealt with applications for declaration of bankruptcy. Of which, the courts issued 236 decisions to open bankruptcy proceedings and 83 formal decisions to declare bankruptcy.

So, the fact is that there are a lot of firms that got into payment difficulties, insolvency, bankruptcy or discontinuation of the business but they did not fulfill the steps and procedures of insolvency or bankruptcy regulations. According to statistics of the Ministry of Finance, this figure accounts for about 10% of annual total of more than 500,000 businesses in operation. Therefore, the proposal of removing tax arrears, and fines for late payment of tax, of the above firms will help to reduce the burden on debt collection for the tax agency. In addition, the Ministry of Finance needs to provide more sanctions in which only the founders or representatives of the companies are given new business identification codes, or the above organizations with the minimum of 2 years after insolvency or bankruptcy if they want to continue to set up new businesses or other business organizations.

According to statistics, Vietnam now has about 1.7 million households, individuals and businesses who quit business due to losses. Therefore, the recovery of such debt is not feasible because they are just able to afford the basic needs in their daily life. For that reason, the Ministry of Finance proposed to abolish recovery of all debt to those who businesses stopped before 1-1-2014 and fix a tax debt for cases for the period 1-1-2014 to 31-12-2015.

According to calculations by the Ministry of Finance, the total amount of tax arrears, late payments of money, and removal of fines from insolvent or bankrupted taxpayers, or those that quit the business before 1-1-2014 is 7,421.286 billion vnd, of which enterprises, organizations account for 6432.141 billion vnd and households and individuals is 989.145 billion vnd.

In spite of difficulties balancing the State budget, the policy to reduce corporate income tax (ICT), remove tax debt, late payments, and fines for a number of enterprises demonstrates a great effort by the Finance Industry in implementing the major policy of government in boosting the development of enterprises.

If passed by Congress, this draft resolution will solve many obstacles for businesses, while reducing the burden on collection agencies, because in fact, the debt collection for businesses that are in the state of insolvency or bankruptcy is almost impossible to accomplish.

The amount of tax arrears, late payments, and tax fines by taxpayers who had actually become insolvent, gone bankrupt or dropped business from 01 January 2014 to 31 December 2015 is estimated at 6,731 billion vnd, of which the debt of taxpayer businesses or organizations is 5,716 billion vnd and households and individuals is around 1,015 billion vnd.