Corporate tax cut curtails incentives

According to Decree No.78/2014/TT-BTC, enacted January 1, 2016, Vietnam’s corporate income tax (CIT) rate has been reduced from 22 per cent to 20 per cent across all industries.

This means that the 20 per cent CIT which a number of companies had enjoyed as an incentive offered by the government is no longer an incentive. And it does not look as if a similar tax cut for companies that had benefitted from incentives is on the horizon.

Some companies are wondering what happened to their incentives. For example, the pharmaceutical firm Sanofi-Synthelabo Vietnam, which had benefitted from the 20 per cent rate before Decree 78, sent inquiry to the Ho Chi Minh City Tax Department requesting a tax reduction to 17 per cent.

Likewise, Denso Vietnam, a joint venture of the Japanese groups Denso Group and Sumitomo Group, which supplies automotive systems and components, sought an explanation from the tax authorities.

In response, the General Department of Taxation (GDT) directed its local departments to handle the corporate requests. ­­

“Only certain incomes mentioned in Clause 3, Article 15 of Decree No.218/2013/ND-CP detailing the implementation of Law on Corporate Income Tax are eligible for the new rate of 17 per cent since January 1, 2016,” the GDT replied.

Specifically, the 17 per cent tax rate is only granted to enterprises with investments in areas with difficult socio-economic conditions, or in fields of production of high quality steel, energy saving products and machinery. Forestry, fishing, and salt industry involvement are also grounds for receiving the 17 per cent rate.

According to tax experts, these previously incentivised firms will most likely have to accept the cancellation of their incentives. This is not the first time incentives were withdrawn after a period of implementation.

For instance, during the period between 2009 and 2013, privileges granted to new investment projects in industrial zones were abolished.

Prior to 2009, incentives included three years of tax exemption, seven subsequent years of 50 per cent reduction, and 12 years of preferential CIT rate of 15 per cent since project commencement.

From 2013 onwards, the privileges were reinstated, but were less favourable than those formerly offered in the period prior to 2009. Currently, new investment projects in industrial zones are granted only two years of tax exemptions and four years of 50 per cent tax reduction.

“In recent years, CIT incentive policies have seen significant amendments due to changes in government’s investment policies to attract more business in diverse markets. Now, tax privileges are mainly to encourage investments in areas of high-tech, sustainable production, and difficult socio-economic conditions,” said Tuan Nguyen, local tax manager at auditing firm Deloitte.