SMEs get needed VAT lift

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According to Resolution 68/NQ-CP dated December 27, 2010, small- and medium-sized enterprises (SMEs) only have to declare value added tax (VAT) every quarter from last month and family-run businesses every six months instead of every month previously.

“This is a positive move showing that the government’s Project 30 on simplification of administrative procedures is having tangible results,” said Thomas McClelland, tax partner of Deloitte Vietnam.

“It is similar to the position in other countries where SMEs are able to declare VAT on a bi-monthly or six monthly basis rather than monthly for large enterprises,” he told VIR.

This move is a part of the tax reform programme to help SMEs and family-run businesses pay dues more easily, while saving both time and money by reducing the amount of required paper work.

McClelland said reducing the costs of tax compliance was important for SMEs.

The costs of compliance for SMEs are far higher relative to their turnover than larger enterprises.

The too high costs of compliance can lead to dissatisfaction with the tax system which may cause tax evasion.

In addition, McClelland said in other countries a threshold level of annual sales before an enterprise is required to register for VAT was common. 

Enterprises in Singapore, for example, with an annual turnover of less than $1 million in local currency are not required to register for VAT.  Globally, the average annual turnover before a company is required to register for VAT is $70,000.

“Vietnam could consider the adoption of such a sales threshold although at a lower level to balance with not significantly reducing VAT revenues to the state,” he said.

Ngo Hai Phan, director of the Government Office’s Administrative Reforms Department, said most small companies paid a very modest monthly VAT.

Phan said the government should instruct the General Department of Taxation (GDT) to set a VAT threshold so that enterprises whose earnings were higher than the threshold would have to declare VAT on a defined percentage of their revenue, while those with turnover less than the threshold would be allowed to pay a fixed rate for the entire year.

The Department of Administrative Reforms estimated that the new policy would help SMEs save more than VND600 billion ($29 million) per year.

According to the GDT, in Vietnam there are more than 500,000 SMEs whose charter capital are less than VND10 billion, accounting for 98 per cent of all Vietnamese companies, contributing more than 40 per cent to the country’s GDP and more than 50 per cent of the country’s labour force.