Appeals for clarity on access to tax extension scheme

Appeals for clarity on access to tax extension scheme

After the government spent many months researching policies to support businesses to overcome the impacts of the COVID-19 pandemic, tax reductions are receiving wide support from businesses.

Last month, the Ministry of Finance (MoF) proposed to extend the deadline for paying taxes and land rents to further remove difficulties for businesses. The ministry proposed to extend the timeframe for VAT for an additional five months and offer an additional three months for corporate income tax payments.

Business households and individuals could thus enjoy a deadline extension for VAT and personal income tax payments for tax payable in 2021. As for land rents, the MoF requests an extension of the payable land rent in the first period of 2021 for enterprises, organisations, business households, and individuals that are eligible for this support. If this proposal is approved, the total amount expected to be postponed or deferred is estimated at VND115 trillion ($5 billion), according to the ministry.

Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry (VCCI), said that most businesses are trying to find ways to survive and retain their workers’ jobs, with only a few larger ones remaining relatively unscathed.

According to a survey conducted by the VCCI and the World Bank at the end of 2020, more than 80 per cent of Vietnamese businesses have been negatively affected by COVID-19, and more than 72 per cent of businesses have been experiencing a decrease in revenue.

For instance, the pandemic forced Pearl Garment JSC to narrow down its production scale to ensure a speedy capital turnover, safe production indicators, and the salary for employees.

Phan Anh Tuan, deputy director of Pearl Garment, hoped that the government’s tax rescheduling “will maintain production and business.” Up to now, the company has not been able to restore production, and its output is facing difficulties as customers in importing markets such as Europe, South Korea, and the US were responding with fewer orders amid the pandemic.

If approved, this would not be the first time that the government has provided assistance to businesses affected by COVID-19. Last year, it provided about VND130 trillion ($5.65 billion) to companies and household businesses by postponing taxes, fees, and other payments.

Pham Thi Tuyet Lan, deputy director of the Tax Revenue Estimation Department under the General Department of Taxation, said that this support created a fair recovery option in revenue, helping 2020’s budget revenue exceed the estimate. Lan said this is a “good experience” to implement budget collection tasks for this year.

However, some economists disagree. Assoc. Prof. Dinh Trong Thinh of the Academy of Finance said that it is necessary to specify subjects entitled to tax payment extensions. “In essence, an enterprise is only obliged to pay income tax if it actually has income. When there is no income, there is also no income tax,” Thinh said, which means that if the proposal is applied on mass, some businesses will enjoy tax extensions despite doing well in recent months.

According to Thinh, it is necessary to learn from the support policies in 2020, which were much less effective than other efforts of the government in supporting the economy. For example, with the credit support package, when businesses wanted to access this support, they were met with complicated procedures and large costs such as audit reports, damage assessments, and liquidity proofs.

“With such a design of the supporting policies in 2020, many small and medium-sized enterprises that needed support the most were the ones that had trouble accessing them,” Thinh said.

Moreover, the policy for direct support to employees have also been ineffective, according to him. By the end of August, only over 16 million people from different groups of workers received support with a disbursement rate of only over VND17 trillion ($739 million), accounting for 19 per cent.

In which, the majority of workers belonged to sponsored groups, workers with meritorious services, and poor households. Meanwhile, those most affected are freelancers and disadvantaged workers in the informal sector that do not have access to this support package. These shortcomings, Thinh said, “need to be addressed when implementing the new supporting policies in 2021”.

Many aid advocates in organisations said that lawmakers should turn to a more focused and efficient approach to support small businesses, until widespread vaccination takes place and helps to open the economy entirely.

Nguyen Thi Cuc, chairman of the Vietnam Tax Consultants’ Association, said that the tax extensions for businesses will reduce a part of their budget revenue. But this policy will still help them to re-invest and thus contribute more to the state budget.

Cuc estimates that up to now, over 80 per cent of businesses are being negatively affected by the pandemic, of which small businesses are the most strongly affected. If the state allows enterprises to pay taxes more slowly, it will help them overcome the current difficulties and increase sales.