KPMG exclusive #2: Hitting the spot with government support

Le Thi Kieu Nga, partner, head of Corporate Tax at KPMG

The defining event of the past years was the COVID-19 pandemic. Our lives have changed, and business along with it. What would you say were the most effective changes businesses in Vietnam implemented throughout their operations to deal with the crisis?

The COVID-19 pandemic has brought a “new normal” for the world of business. The government’s measures to deal with COVID-19 through closing borders, instigating lockdowns, and movement restrictions have decreased social connections and eventually caused labour shortages and supply chain disruptions for businesses.

The most effective changes from enterprises to deal with the crisis, from our observation, would be the digitalisation of their operations and adopting agile mindsets by the management in arranging production. While digitalisation enables employees to work from anywhere, it provides new production models for manufacturers to maintain production schedule and accelerate the supply chain during a crisis.

We have seen many manufacturing companies implement the “three on the spot” model where employees work, eat, and sleep on-site for production or the “one route, two destinations” model where the company provides accommodation such as dormitory, hostel, or hotel and transportation from the accommodation to work. The additional costs incurred for these production arrangements were recently announced by the General Department of Taxation to be considered deductible expenses for corporate income tax purposes and non-taxable income for employees’ income tax purposes.

In terms of global mobility, we observed that some companies have offered flexible “work from anywhere” policies for foreign experts. In the context of uncertainties in reopening of international flights, this approach has proved efficient during the lockdown and isolation period.

Last but not least, the use of e-invoices and the roadmap for their compulsory use, which has become a hot topic recently, has been one of the most effective changes to support businesses to maintain stable operations. Since the first introduction for the e-invoicing scheme under the Law on Tax Administration 2019, e-invoice has been proving its efficiency for business operation, especially during the social distancing period. It makes economic transactions more transparent, saving costs for businesses and is proven an efficient tool to prevent tax fraud for the tax authority.

How much of these changes do you think enterprises will retain even after the pandemic?

The pandemic posed many uncertainties, pushing businesses to adopt agile mindsets and reinforce agility in arranging businesses, which will be an important asset to retain in the future. More than ever, enterprises have been facing significant challenges from both business and regulatory compliance. Within the year 2021, the government issued various resolutions to provide support measures to alleviate the financial impact on taxpayers. The Law on Tax Administration introduced various tax declaration and payment mechanisms to enforce digitalisation in tax administration.

Thus, an agile mindset contributes not only to the decision-making process for business operation but also extends and accelerates the enterprise’s regulatory compliance. The thorough understanding of updated regulations will eventually support enterprises in making better strategic business decisions.

On a related note, relief measures by the government have been important in helping businesses overcome the pandemic, but the effectiveness of the policies has been questioned. What changes are required to support businesses more effectively?

It is acknowledged that the government has been providing various relief measures in helping businesses overcome the pandemic. These include a 30 per cent Corporate Income Tax (CIT) reduction and 30 per cent Value Added Tax (VAT) reduction for eligible enterprises, Personal Income Tax (PIT) and VAT exemptions in the third and fourth quarter of this year for eligible individuals and household businesses, exemption of late payment interest in 2020 and 2021, waiving of mandatory insurance, as well as easing of work permit procedures for foreign workers, among others.

To some extent, the relief measures have provided effective support to businesses and kept Vietnam on track to its macroeconomic growth targets. They have also underlined the government’s intention to bring the economy up to speed. However, more tax breaks are also expected to lower input costs, reduce production costs, and improve supply chains. The recent tax relief measures may not necessarily address all businesses impacted by the pandemic.

Thus, support needs to be made more effective to reach and impact a wider community of beneficiaries. This would spur economic growth by supporting enterprises to resume production and improve their performance while contributing to several public goals.

Support measures could be made more assertive by broadening the scope of taxpayers eligible for CIT and VAT reduction. It would also be effective to extend the deferment period of VAT/CIT/PIT payments to 2022.

Additionally, government authorities should consider waiving union membership fees for members and businesses affected by the pandemic. A further lowering of lending rates and more flexible conditions could also support businesses in accessing credit.

The views and opinions expressed herein are those of the interviewees and do not necessarily represent the views and opinions of KPMG Tax and Advisory Limited.