In defence of the call for raised tax

Vu Thi Luu Mai, standing member of the National Assembly’s Financial and Budgetary Committee, spoke with VIR’s Manh Bon about the issue.

Experts have claimed that the tax burden on businesses is too high currently. Do you agree?

Taking charge of overseeing law enforcement in the finance, budgetary, and state audit fields, as well as supervising the activities of diverse government agencies in the implementation of budgetary and tax policies, I am sure that the contribution Vietnamese businesses make to the state budget is not high compared to that of other countries.

Between 2011 and 2015, total budget collections made up an average 23.3 per cent of Vietnam’s GDP, compared to 23 per cent in Thailand, 16.6 per cent in Indonesia, 23.4 per cent in Laos, 24.5 per cent in Malaysia, and 19.5 per cent in India. In most of these countries, budget collection only consists of taxes and fees, whereas in Vietnam, this sum also covers the contributions from crude oil, land rental, and proceeds from selling state-owned houses. If the contributions of these were excluded, taxes and fees alone would have only accounted for about 15.6 per cent of GDP.

In addition, the tax rate in Vietnam continues to drop. For instance, before 2004 businesses were obliged to pay a 32 per cent corporate income tax (CIT) rate. From 2004, this tax rate was relaxed to 28 per cent, and from 2009, it further decreased to 25 per cent. The CIT rate continued to drop even further (22 per cent from 2014 and then 20 per cent from January 1, 2016).

Meanwhile, the Philippines applies a CIT rate of 30 per cent, Thailand, China, and Malaysia 25 per cent, and the world average stands at 27 per cent.

In terms of value added tax (VAT), Vietnam applies a common VAT rate of 10 per cent, while VAT rates range from 12 to 25 per cent in 88 of the 112 economies surveyed by the World Bank. Irrespective of other tax incentives such as tax reductions, exemptions, or tax payment deadline extensions, in terms of rates, Vietnam’s tax policies are among the most business-friendly in the world.

Does the business community agree?

It is evidenced in the increasing investment inflows and market growth. As I said above, tax contributions from businesses are not high, and in addition to the favourable reductions in tax rates I have just listed, there have also been other reductions. From January 1, 2017, more than 90 different fees and charges were removed, and 45 others were shifted into price scheme to encourage businesses’ participation in the provision of public services.

Besides fees and charges, businesses also have to pay trade union fees, medical and social insurance fees, as well as unemployment insurance fees for labourers. This sum, which aims to ensure the social well-being of labourers, makes up about 23.5 per cent of businesses’ total payroll. So, saying that businesses pay too much to the state budget would prove inadequate.

To help firms overcome difficulties, should the Ministry of Finance consider asking the National Assembly to take measures like tax reduction and exemption and apply them in particular circumstances, as it did in the past?

From 2008 until now, the National Assembly enacted six resolutions on tax exemptions and reductions that benefitted particular circumstances. It is undeniable that these policies have generated effects, helping to accelerate production and business, attract investment from domestic and international sources, and contribute to tackling a diverse range of social issues.

However, enacting such policies in the current context needs thorough consideration, as businesses are not in tight conditions like they may have been previously. This is evidenced by the fact that the rate of businesses posting profits in the total number of businesses continues to grow.

Surveys conducted by a number of agencies and organisations also show that financial obligations to the people of Vietnam are not one of the business community’s primary concerns. They are more interested in state support coming in the form of training, space provision, trade promotion, science, and technology.

While some firms complain about high taxes, evidence points to the contrary, Photo: Le Toan

HIGHLIGHTS OF MOF’S NEW TAX PROPOSALS, IN BULLET FORM

The Ministry of Finance last week released a series of tax proposals seeking public comments before submitting to the government. VIR here introduces these proposals’ highlights.

Amending the VAT Law

-Putting fertilizer, machinery and equipment used in agriculture, and off-shore fishing boats in the group of items subject to value-added tax (VAT) payment from VAT free status;

-Supplementing one regulation, stating that businesses producing commodities and supplying services subject to a 5 per cent VAT rate payment will have access to a VAT refund if their incoming VAT amount has yet to be fully deducted after 12 months or four quarters;

-Annulling the regulation: “export products processed from mineral resources having total mineral resource value plus energy cost making up from 51 per cent of the production cost and more” not entitled to VAT payment, and the regulation: “investment projects on mineral resource exploitation licensed from July 1, 2016, or investment projects on commodities production having total mineral resource value plus energy cost making up from 51 per cent of the production cost and more” not entitled to VAT refund;

-Amending the condition for incoming VAT deduction for non-cash payment documents for purchased products and services valued below VND10 million ($454), from the previous level of below VND20 million ($910). Exemptions applied to products and services bought recurringly.

Amending the SCT Law

-Adding sugary drinks to the list of items subject to special consumption tax (SCT), with a tax rate of 10-20 per cent to be applied from 2019;

-SCT rate for tobacco increases from 70 to 75 per cent from 2019, plus a charge of VND1,000 on a pack of 20 cigarettes and VND1,500 on a cigar, applicable from January 1, 2020.

-Imposing an SCT on pickup trucks equal to 60 per cent of the rate levied on cars having similar cylinder capacity (currently, pickups with a cylinder capacity of 2,500 cubic centimetres (cc) and below are subject to a 15 per cent SCT rate, 2,500- 3,000cc at 20 per cent, and above 3,000cc at 25 per cent);

-One amendment relates to the SCT calculation applied to vehicles with nine seats and below, and aims to help realise Vietnam’s auto industry development strategy. The taxable value is the car value set by the carmakers minus the value of locally-produced parts and components.

Amending the CIT Law

-Proposing corporate income tax (CIT) reductions to benefit small- and medium-sized enterprises (SMEs) to match the Law on Supporting SMEs that the National Assembly has just enacted.

Proposing a 15 per cent CIT rate for small-sized (total annual revenue below VND3 billion, or $136,360) enterprises, and a 17 per cent CIT rate for SMEs with no more than 200 labourers participating in social insurance fee payments on average annually, and total annual revenue from VND3-50 billion ($136,360-$2.27 million).

To avoid businesses cashing in on legal loopholes, the draft law stipulates these 15 per cent and 17 per cent CIT rates do not apply to businesses that are member units of parent companies, in which the parent company holds at least a 25 per cent stake.

Amending the PIT Law

-Supplementing a policy on personal income tax (PIT) reduction to high-tech personnel working in information technology, agriculture, and agricultural produce processing fields;

-Supplementing one regulation that income raised from the transfer of the use of internet resources is now entitled to PIT payment.

-With respect to the withholding tax, to simplify tax control and avoid causing losses to state budget, the Ministry of Finance recommends the government add a 1 per cent withholding tax on the transfer of capital by foreign businesses, whether or not they have establishments in Vietnam.