Crucial small business arena to receive reduced CIT boost

April 24, 2024 | 11:12
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A reduction in corporate income tax is expected to materialise for smaller enterprises in Vietnam, helping them improve competitiveness.
Smaller businesses are much more prone to economic market shocks, photo Le Toan
Smaller businesses are much more prone to economic market shocks, photo Le Toan

The National Assembly (NA) Standing Committee last week agreed to supplement previous discussions of the draft amendments to the Law on Corporate Income Tax (CIT) and to the Law on Special Consumption Tax, in a bid to help remove difficulties in business performance and ensure stability of state budget revenues.

One of the biggest highlights in the draft amendments to the CIT is that the NA Committee for Finance and Budgets showed consensus to some new specific policies, such as the supplementation of regulations for the application of lower CIT for small- and micro-sized enterprises, at 17 and 15 per cent, respectively.

It is expected that this policy will be adopted at the 15th NA’s ninth session, which will be held in Hanoi during May and June 2025.

In Vietnam under the Law on Support for Small- and Medium-sized Enterprises, small enterprises refer to those with 10-49 people employed, and total annual revenue and total capital of VND50 billion ($2.08 million) and VND20 billion (more than $833,300), respectively. Micro-enterprises refer to those with from one to nine employees, and total annual revenue and total capital of VND3 billion ($125,000).

At present in Vietnam, all taxes are imposed at the national level and the standard CIT rate is 20 per cent. Enterprises operating in the oil and gas industry are subject to rates ranging from 25 per cent to 50 per cent, depending on each contract.

Enterprises engaging in prospecting, exploration, and exploitation of certain mineral resources are subject to rates ranging from 32 to 50 per cent, depending on each project. Preferential rates of 10, 15, and 17 per cent are available where certain criteria are met.

Vietnam is now home to about 800,000 enterprises, of which more than 98 per cent are medium-sized or smaller and are often cash-strapped and lack output markets, with weak competitiveness.

Figures from the General Statistics Office showed that in 2023, just over 89,000 businesses halted operations, up 20.7 per cent as compared to the previous year. Around 65,500 enterprises stopped operations and waited for dissolution procedures, up 28.9 per cent, and 18,000 enterprises completed such procedures. On average, 14,400 enterprises left the market every month.

The first quarter of 2024 saw 53,400 businesses with suspended operations, up 24.5 per cent on-year; 15,500 businesses stopped operations waiting for dissolution procedures, up 21.7 per cent; and 5,100 enterprises completed such procedures.

Nguyen Cong Bang, director of Cong Bang Foodstuff Co., Ltd. based in the outskirts of Hanoi, told VIR that currently like thousands of other businesses, his company is faced with massive difficulties.

“Prices of input materials like sugar, gas, beans, and cooking oil have increased by an average 15 per cent since late October, while we still have to pay many types of taxes including a CIT rate of 20 per cent costing about VND24 million ($1,000) per month,” said Bang, whose company employs 30 people.

“If the tax is reduced to 17 per cent, we can save about $30 a month and $360 a year. The sum is not so big, but it demonstrates the state’s support to small-sized enterprises like us,” Bang said.

However, according to Dang Dinh Quyet, vice director of Hoang Ngoc Trading JSC in Hanoi, specialised in trading rice and agricultural products, there is an urgent need to reduce assorted taxes including CIT for micro and small enterprises that are often vulnerable to shocks in the market.

“For example, a reduction can be offered to those with total revenue of below VND10 billion ($416,000) a year and this should be divided into different levels for application. For instance, a CIT rate of 15 per cent is offered to a revenue of more than VND5 billion ($208,000) and a rate of 10 per cent is offered to a revenue of below that figure,” Quyet said.

According to the Ministry of Finance which compiles the draft amendments to the CIT law, the government has also proposed to amend and supplement a number of regulations on determining payment in the direction of allowing enterprises with losses from conducting production and business activities (currently receiving CIT incentives) to be offset by profits earned from real estate transfer, project transfer, and transfer of rights to participate in ventures.

The Ministry of Finance last month submitted a proposal to amend the CIT law to the government. The proposal aims to meet practical requirements and new development demands, contribute to restructuring the state budget, create a fair business environment, ensure consistency of the legal system, and enhance international cooperation.

The government has agreed on seven policies in the proposal to amend the law. These are improving regulations related to taxpayers and taxable income; exempted income; determination of taxable income and tax calculation methods; determination of deductible and non-deductible expenses; CIT incentives; adjusting tax rates for certain groups to align with new requirements; and applying supplementary tax to prevent global tax erosion.

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By Thanh Thu

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