Firms need tax help to overcome hurdles

Economic experts assumed tax claimed big proportion in Vietnam’s budget revenue. Is that the case?

Tax and fee contributions to state budget were discussed not only by economic experts, but also National Assembly deputies through many sessions and most assumed that state budget has mobilised ‘excessively’ from the corporate community.

However going into detail, businesses’ contribution to budget revenue is not high, even much lower compared to other countries. That is because local budget revenue also covers crude oil, natural resources, aids, and import export raising sources.

For instance, in 2012 total budget revenue is proposed at VND740.5 trillion ($35 billion) but if contributions from crude oil, import-export and aid was excluded, mobilising from domestic sources fell to VND494.6 trillion ($23.5 billion). If land related contributions, yields from public assets at communal level and other raising sources were excluded further, the figure dropped to merely VND448 trillion ($21.3 billion) tantamount to 14 per cent of the gross domestic product (GDP) which is much lower than in many countries (26.4-27.8 per cent of GDP).

Are tax and fee contributions to GDP in Vietnam higher than in regional countries?

Tax, fee contributions accounting for 14 per cent of the GDP in Vietnam are not high compared to in regional countries as it is 17.3 per cent GDP in China, 15.5 per cent in Thailand and Malaysia, 13 per cent in the Philippines and 12.1 per cent in Indonesia.

In Vietnam, the budget contribution mechanism is applied uniformly throughout the country.

Localities cannot create other tax raising sources and reduce/increase regulated tax rates.

Meanwhile, in many countries budget collections are decentralised to each province and state.

For example, businesses incur a 25 per cent corporate income tax, but some localities with more auspicious conditions for development may collect 5-10 per cent tax rate additionally. If this was included parallel to official tax contributions, the proportion of tax, fee contribution to GDP in these countries may be much higher than in Vietnam.

So why did you strongly advocate the corporate income tax (CIT) reduction proposal from 25 to 20 per cent?

The National Assembly will consider revising the CIT Law in 2013. There are now two scenarios: reducing CIT rate directly to 20 per cent or gradually lowering the rate to 22-23 per cent than to 20 per cent. I support the first scenario.

In reality, through two CIT tax reductions in the past (from 32 to 28 per cent and from 28 to 25 per cent) total budget revenue hiked year after year, growing an average of more than 10 per cent per year because lower tax gave firms opportunities to accumulate capital for production and business expansion and attract more foreign investment.

In the current context of economic uncertainties and countries around the world scaling up efforts to attract investors through lower taxes the National Assembly should consider driving down CIT rate to 20 per cent. This would help soften firms’ burdens, woo more foreign investment, while helping reduce tax frauds and transfer pricing cases.