CIT changes to benefit firms

Will the CIT draft help firms bolster competitiveness?

Businesses building social housings will benefit from 10 per cent preferential CIT rate. The same rate is also applied to incomes from printed newspapers of press organisations as well as incomes from publishing activities. Micro-finance organisations will enjoy 20 per cent CIT rate as with small- and medium-sized enterprises (SMEs), which are classified as having less than 200 labourers and generating at most VND20 billion ($950,000) in annual revenue.

Big businesses shall incur a 23 per cent CIT rate versus 20 per cent rate applicable to SMEs. Is that fair?

Around 95 per cent out of around 400,000 operating businesses are specified as SMEs and most of firms incurring dissolutions or temporary cessations of operation were also SMEs. Hence, it is impartial as SMEs have lowered CIT rates than common ones as it would help SMEs increase accumulation to prop up production and business.

Applying a 20 per cent CIT rate to SMEs and honouring tax incentives on some areas are important to support firms when we still could not pull down the common CIT rate to 20 per cent. This is also one of measures to materialise the tax sector reform strategy striving to achieve the target of budget revenue accounting or 23-24 per cent of the GDP during 2011-2015.

Will the CIT draft version allow loss-running property businesses to deduct losses from other sources of incomes?

If property businesses still incurring losses after calculating profits-losses resulted from transfer of investment projects, properties or the right to participate in investment projects or from transfer of the right for mining exploration, extraction and processing these losses will be deducted from incomes generated from other production and trading activities during the taxing period. This is one of breakthroughs in the amended version.

I would like to underscore that profits from business activities compensated losses from property transfer was one-way deduction that matches the current property market doldrums. However, when the market rebounds and firms generate revenue from these activities they shall fill in tax declarations, but they cannot continue taking profits to compensate losses. This is one of core contents in business restructuring, economic restructuring commitments.

Many countries have removed cap on advertising, promotion, commission or brokerage expenses. Why Vietnam did not take the move with the draft CIT version?

Countries vary in development degrees and other conditions, hence repeating what other countries do would not always be wise. Businesses wanted to remove the cap are not large in number, they are mainly big businesses and foreign-invested firms whereas the majority of firms want to retain the cap but they expect the cap being loosened. Thereby, the draft version hikes the cap rate from 10 per cent to 15 per cent of total reasonable expenses.

How would these changes affect on budget collections?

These changes would cast a dent to state coffers in several initial years but in the long term tax contribution would be stable. That is because, new policies will constitute a more conductive business climate to help firms revive and scale up competitiveness compared to regional peers.