The problem of reducing income tax for small businesses

The Ministry of Finance has proposed to reduce corporate income tax (CIT) from 20% to 17%, or even 15% for small and micro enterprises. In addition to reducing tax rates, the draft law also has many amendments and supplements on tax incentives for a number of preferential sectors.

Identify micro-enterprises to apply lower tax rates

A representative of the Ministry of Finance said: The Law on Corporate Income Tax is expected to be amended, supplementing regulations on criteria for small and medium-sized enterprises (SMEs) to apply lower corporate income tax rates. The majority of opinions in the Standing Committee of the National Assembly's Finance and Budget Committee also said that identifying SMEs as the basis for applying lower tax rates based on revenue criteria is appropriate and true to economic nature.

» Enterprises in Nghe An have large tax debts

Therefore, to remove difficulties for micro-enterprises and encourage the conversion of business households into enterprises, the draft Law proposes to stipulate that: Micro-enterprises (enterprises with total annual revenue of less than 3 billion VND) are subject to a tax rate of 15%; SMEs are enterprises with an average number of employees participating in social insurance of no more than 200 people per year; and at the same time, meeting the condition of having total annual revenue from 3 billion VND to 50 billion VND are subject to a tax rate of 17%.

In addition to reducing tax rates, the draft law also has many amendments and supplements on tax incentives for a number of preferential fields. Specifically, in the field of information technology, implementing the direction of the Government, the draft law is expected to supplement regulations on income of enterprises from implementing new investment projects providing a number of important software services and producing digital information content products that need to be prioritized for development to be subject to a tax rate of 10% for 15 years, tax exemption for 4 years and a 50% reduction in corporate income tax payable for the next 9 years.

Previously, in mid-2016, the Ministry of Finance also proposed reducing corporate income tax for SMEs to 15% or 17%, but the preferential tax rate would only apply until 2020. At that time, the Ministry of Finance calculated that if the tax was reduced to 17%, the budget would reduce revenue by about VND 1,500 billion/year (if applying the criteria of SMEs with revenue of no more than VND 100 billion/year) or the budget would only reduce revenue by about VND 473 billion (if applying the criteria of SMEs with revenue of no more than VND 20 billion/year).

According to statistics from the Association of Small and Medium Enterprises, currently only about 30% of small and medium enterprises are profitable (equivalent to 200,000 enterprises), the rest are operating at a loss and production is at a standstill. Mr. To Hoai Nam, Vice President and General Secretary of the Association of Small and Medium Enterprises, said: "Not only tax reduction but also synchronous policies to help businesses overcome difficulties are needed so that tax reduction policies have real meaning."

Tax reduction helps businesses increase competitiveness

Mr. Nguyen Van Phung, Director of the Large Enterprise Tax Management Department - General Department of Taxation said: "The tax reduction will have the biggest and first impact on the will to do business and the enthusiasm for doing business. The tax reduction for small and medium enterprises will of course also create a mentality of readiness to do business for them. Along with that, the spirit of this law amendment will continue to promote administrative procedure reform, increase assistance in procedural processes so that people can see that the transition from business households to enterprises will be more convenient and beneficial. When businesses do well, the economy will develop, in which the contribution of businesses to the budget will also be better even if we reduce tax rates."

According to Mr. Phung, Vietnam currently has over 95% SMEs, among which there are many small and micro enterprises. Therefore, the proposal to amend the tax policy this time will "give more leniency" to a very wide group of people in the business community.

Reducing corporate income tax will stimulate the development of small and micro enterprises. Illustrative photo

Economist Nguyen Minh Phong assessed that to make a decision on how much to reduce corporate income tax for small and medium enterprises, it is necessary to base on 3 requirements: First, it must ensure that the reduction does not cause a "shock" compared to the current level and is consistent with the integration commitment. Second, it must be compared with the general level of other business sectors and other countries to ensure a certain balance. Third, it must be based on the state management goals as well as the endurance of the enterprise.

According to Mr. Phong, the Ministry of Finance’s tax reduction proposal basically meets all three of those requirements. This is also not a reduction that is too strong to have a significant impact on budget revenue. Of course, this tax reduction is only truly effective for businesses that “work hard and eat hard.”

However, to reduce taxes correctly and accurately, two issues need to be noted. First, all tax-reduced subjects as well as related processes and procedures must be made public and transparent to avoid cases of taking advantage of the policy or businesses being made difficult by responsible people. Second, it is necessary to receive assessments and complaints from businesses in the implementation of this preferential policy, and at the same time mobilize the participation of society in monitoring. Only when doing so can good policies for businesses truly be effective.

“The Ministry of Finance’s plan to reduce income tax for SMEs is a very good signal to support and reduce difficulties for businesses. This policy is very important for the development of businesses both in the short and long term. However, the specific reduction needs to be carefully considered based on the analysis of business costs,” Mr. Nam proposed.

Mr. Le Gia Dong - CEO of Smart Computer Technology Joint Stock Company said: According to the draft amendments and supplements to the Law on Tax - Corporate Income Tax, his company is eligible for a tax rate of 17% instead of 20%, because it has a total annual revenue of 3 - 50 billion VND. The reduction of 3 percentage points in corporate income tax compared to before means that the company's profits will increase and it will have more competitive advantages.

"We will set aside a considerable amount to reinvest in production and business activities, thereby increasing profits, and businesses will have more motivation to strive to do business. Businesses want to reduce as much tax as possible, but in any case, this reduction has partly reduced the burden on SMEs," said Mr. Dong.

According to Minh Phuong/baotintuc