Killing multiple birds with one stone

Ministry of Finance’s Tax Policy Department deputy head Nguyen Van Phung tells VIR why he considers the policy a single arrow for several targets.

What are the sums to be raised from tax reduction, exemption and extension this year and in the following year?

The Ministry of Finance (MoF) just enacted Circular 154/2011/TT-BTC and Circular 170/2011/TT-BTC guiding tax reduction, exemption and extension. According to General Department of Taxation figures, the amount resulted from tax reduction, exemption and extension in 2011 was just VND11.379 trillion ($637 million) of which VND9.469 trillion ($450.9 million) came from corporate income tax (CIT) extension.

Corresponding figures for 2012 are VND5.412 trillion ($257.7 million) and VND3.250 trillion ($154.7 million). Though these amounts are not big, it reflects the government’s commitment to sharing difficulties of businesses, particularly small ones which have limited finance, low competitiveness and poor management expertise.

2011’s tax revenue exceeded the projection by 11.3 per cent. Is that the reason why the MoF decided on 2011 corporate income tax extension for labour intensive firms in some areas?

Tax reduction, exemption or extension is aiming at ensuring social security. In light of MoF’s Circular 170/2011/TT-BTC labour intensive enterprises and co-operatives operating in agricultural-forestry and seafood processing, textile and garment, footwear and electronic component production would have their CIT payment deadlines extended by one year.

Accordingly, they are due to pay for 2011 first, second and third quarter CIT amounts in 2011, however payment deadlines will be extended by one year to April 30, July 30 and October 30, 2012. Payment of 2011 fourth quarter CIT will be extended to March 31, 2013.

You said tax reduction, exemption and extension policy was a single arrow for several targets. Would you clarify what are these targets?

Firms benefited from tax reduction, exemption and extension will have more money for production and business activities, from there ensuring social security. Labour intensive areas such as textile-garment and footwear industries are Vietnam’s key export items. When firms benefit from tax extension, they will hold up production and business to ensure labourers’ stable employment and make a 2012 export growth target of 13 per cent achievable.

Then when the economy gets back on stable footing, these firms could make more discernible contributions to state coffers. The prime target of tax exemption, reduction and extension is to ensure social security and maintain stable economic growth.

Will the policy hold in 2012?

In 2012 the National Assembly set a gross domestic product (GDP) growth target of 6-6.5 per cent only on the back of gloomy economic forecasts. To share firms’ burdens the MoF was considering submitting to the government further plans to help facilitate firms’ production and business, including the possibility to extend 2011 tax payment by another 3-6 months.

Tax reduction, exemption or extension directly relates to state budget revenue and expenditure balance and other macroeconomic balances, therefore it must be handled step by step. Otherwise, tax is just one vehicle to help firms. The government could resort to other financial and monetary tools to help firms weather the storm.