Policy makers place high hopes on new SME supporting law

Viet Hung Ltd. producing packaging for Samsung

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When discussing the law at the on-going session, National Assembly (NA) deputies agreed that it needs to be ratified immediately, and that the incentives in tax, land rental fees, and market expansion are necessary to boost domestic SMEs.

“The law was drafted based on the needs of SMEs,” said Minister of Planning Nguyen Chi Dung at the Q&A session with the NA. “We have surveyed companies to see the obstacles they are facing and based on the results came up with the support mechanism.”

Dung said that the law embodies the change in the spirit of the government from controlling to serving companies. The law is very important in the context that the private sector has been identified recently by the government as the primary driver of the country’s socioeconomic growth.

Common concerns among NA deputies were the criteria to classify a company as an SME and why the support mechanisms in the draft are not specific.

Dung answered that the law is only a framework and that the detailed support measures will be based on the actual situation in each time period, the state budget, and the government targets. As to criteria, the government assigned a working group to specify later, together with other issues, such as the aim and operation principles of the three support funds proposed by the draft law.

Vu Hong Thanh, member of the NA Standing Committee and head of the NA Committee for Economics, said that the newest version of the draft has eliminated parts that would cause conflict, overlapping with earlier laws, such as the Law on the State Budget, the Law on Land, the Law on Credit Institutions, the Law on Corporate Income Tax, and the Law on Personal Income Tax. It also added the criteria on annual revenue to the definition of SMEs.

Some NA deputies think that only some SMEs should receive corporate income tax (CIT) incentives in order to prevent the state budget from plummeting. However, the NA Standing Committee explained that the draft law stipulated that SMEs receive CIT incentives, so only the profitable ones benefit from this clause. Statistics show that only 50 per cent of SMEs will enjoy this benefit.

Currently, profit-making companies only account for 49.4 per cent of the total operating companies. So it is estimated that 301,300 companies will benefit. Assuming that for medium-sized enterprises the CIT rate will be cut by 1 percentage point, for small enterprises 2 percentage points, and for micro enterprises 3 percentage points, the state budget revenue will decrease by VND1.92 trillion ($84.5 million). This number is not overly big. In contrast, this decrease will help grow the tax base.

Policy makers are hoping that the law will be boost the Vietnamese private sector and enable it to grow.