Reducing corporate income tax is base of revenue

VCN- The Ministry of Finance is proposing to reduce the corporate income tax rate (CIT) for small and medium enterprises in some sectors to 15% -17%.
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reducing corporate income tax is base of revenue

According to calculations, if approved, the budget will lose about 6,500 billion dong from this tax reduction, but it will be a great motivation for businesses, thereby nurturing long-term revenue.

Encouragement of conversion intoenterprises

Like many other countries, in Vietnam, SMEs play an important role in socio-economic development, accounting for a high proportion of the total number of businesses. To ensure the goal of continuing to promote SMEs to develop, in accordance with the principles in the SME Support Law No. 04/2017 / QH14 and with the support of the State In each period, it is necessary to study and propose appropriate CIT rates for SMEs.

International experience shows that many countries have adopted support policies and programs to create favorable conditions to promote SME development, in which tax support policy is a tool whichis often used.

In Vietnam, prior to January 1, 2014, the CIT Law stipulates that the general applicable tax rate is 25%. From January 1, 2014 Law No. 32/2013 / QH13 reduced the universal CIT tax rate to 22% from2014 and to 20% from 2016.Enterprises with an annual turnover not exceeding VND 20 billion (SMEs) are entitled to a tax rate of 20% from July 1, 2013, earlier than the above schedule. At present, SMEs which are applying the tax rate as enterprises in general is 20%.

According to the SME Support Law No. 04/2017 / QH14 effective from January 1, 2018, Article 10 stipulates: “SMEs are applied with a CIT rate lower than the ordinary tax rate applied to businesses in accordance with the law on CIT”. In addition, the Law on Enterprises No. 68/2014 / QH13, which took effect from July 1, 2015, also stipulates in Article 212, "Household businesses that regularly use 10 or more employees must register as establish enterprises operating under the provisions of this Law”.

In order to continue to encourage SMEs to develop, alterations to the provisions of the SME Support Law No. 04/2017 / QH14, regardingCIT are required to enhance the promotion of enterprises developing and expanding. Particularly to encourage business households and individuals to shift to operate under the business model to achieve the target of having 1 million enterprises by 2020.

The attached specific conditions

The Ministry of Finance has drafted and sent a Resolution to the National Assembly on a number of CIT policies to support SME development, including a tax reduction policy.

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According to the drafting agency, small businesses are entitled to tax rate of 17%; Micro enterprises,with specific criteria,a rate of 15%. Micro enterprises are defined as enterprises with annual turnover of less than 3 billion VND and have an average number of employees not exceeding 10 people; Small businesses are enterprises with total annual revenue from 3 billion to less than 50 billion and have an average number of employees not exceeding 100 people. Turnover used as a basis for determining the correct tax rate is the total turnover of the preceding year.

In order to avoid cases where enterprises set up subsidiaries to enjoy the above tax incentive policy, it will not apply to subsidiaries and companies that have an affiliated relationship.

The reduction of tax rates for the two types of enterprises mentioned above will help SMEsto accumulate capital to develop production and business, improving the competitiveness of enterprises and helpSMEs to develop and convert into larger-scale enterprises.

According to the Ministry of Finance's calculations, the tax reduction is expected to reduce the state budget revenue by about VND 6,500 billion per year. However, the reduction in revenue generated by SME support will be offset by indirect taxes and other revenue sources with the reduced tax amount being used forre investment. It will also contribute to increased income from CIT infuture periodsas enterprises have conditions to reinvest and develop production and business.

Mr. Pham DinhThi - Director of Tax Policy Department, Ministry of Finance:
The proposed tax solutions will have a big impact on promoting business and production development of the SME sector, removing difficulties for businesses, creating a favorable, transparent and reforming investment environment. Although the reduction of this obligation in the short term will put pressure on the state budget balance, in the long term, it will create conditions for small and super small enterprises to grow through reinvestment and development of production and business, which contributes to increasing income from CIT for the state budget in the following years.

In order to overcome and offset the impacts on the state budget revenue in the short term as well as to ensure the initiative in managing the state budget estimates, the Ministry of Finance will coordinate with the concerned ministries and branches and focus on effectively implement tax lawsand strengthen inspections against tax losses.

Hong Van/Bui Diep

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