Investors happy about new cut in corporate income tax

Investors happy about new cut in corporate income tax

Prime Minister Nguyen Xuan Phuc made the announcement at a recent event, saying the move will help make Vietnam one of the most competitive economies in the region.

However, details about the cut are still unclear.

The HCM City Securities Company (HSC), in its latest report, commented that small and medium enterprises (SMEs) could be the first beneficiaries, recalling a series of ministries’ moves in the past.

Phuc’s announcement coincides with information that the Ministry of Finance (MOF) in August 2017 suggested slashing the CIT rate to 15 percent for micro enterprises and 17 percent for SMEs.

Micro enterprises have annual turnover of less than VND3 billion.

SMEs refer to enterprises with no more than 200 workers with an insurance policy and annual revenue of VND3-50 billion.

The draft decision on tax reduction compiled by MOF says that the preferential CIT rates of 15-17 percent will not be applied to businesses organized under the parent-subsidiary model in which holding companies hold 25 percent or more shares of subsidiaries.

HSC believes that the tax reduction will not have a big impact on the tax collections, but will bring significant economic benefits.

HSC says SMEs account for 95-97 percent of total number of registered businesses, but the SMEs with revenue of less than VND50 billion only pay VND7 trillion in CIT annually.

The figure is equal to 3.5 percent of total revenue from CIT collections and 0.8 percent of total revenue from tax collections.

The stock market bounced back after the announcement as investors hope large corporations will also enjoy the tax reduction.

“Investors do not question the sphere of tax adjustment, believing that sooner or later, it will be applied to all kinds of businesses,” HSC commented.

Nguyen Duc Thanh, general director of Tanimexco, said businesses will have more capital for re-investment, and will be able to reduce the number of loans.

Tanimexco has to pay VND10 billion in CIT a year, and if the company has a 15-17 percent CIT rate, it would save VND2-3 billion a year.

Nguyen Tri Hieu, a finance expert, commented that the tax reduction, if applied only to SMEs, will be significant. He thinks it would be better to apply to all businesses, including large corporations.