State rebuffs MoF tax cuts

MoF’s proposed tax incentives to support businesses seem to have gone too far, and will be scaled back-Photo: Le Toan

The proposals are stated in the draft Resolution of the government on tax solutions, to remove barriers and support business development. The draft resolution will be reviewed by the government at its October meeting before being submitted to the National Assembly for approval.

In the draft, the Ministry of Finance (MoF) proposed to allow property income profit to offset the losses of other business activities starting on January 1, 2017 to the end of 2020, which is currently prohibited by the prevailing Law 32/2013/QH13 on Corporate Income Tax (CIT).

However, Deputy Prime Minister Vuong Dinh Hue has asked MoF to remove this proposal from the draft resolution, saying that “if necessary, the ministry will evaluate the implementation of the CIT law and propose amendments later”.

From 2004 to 2012, both loss and profit from property were not allowed to be offset by other business lines, and “two-way offset” was banned. This is due to the rapid growth in the property sector during the period, which brought significant profit to enterprises. The policy then was to ensure budget collection and prevent speculation by investors, according to MoF.

During 2013-2014, the property market faced sluggish development, and even stand-still periods that caused firms major losses. The Law on CIT 2013 allowed firms to offset those losses with profits from other activities, called “one-way offset”.

“Currently, enterprises are increasingly participating in multi-sector businesses including agriculture, like VinGroup and Hoa Phat. As the government is encouraging agricultural investment, the proposal would help them tackle risks arising from these activities,” explained Pham Dinh Thi, MoF’s head of Tax Policy Department.

Thi added that at this point, the legal system has been substantially strengthened compared with the period prior to 2012. Besides, “it is troublesome for businesses in terms of administrative procedures to declare property income separately”, Thi said.

The proposed 50 per cent personal income tax (PIT) cut for high-tech personnel also faced scrutiny from the government. Instead of a quick approval, the deputy prime minister asked for a detailed presentation of the potential impacts.

“If necessary, the waiver can just apply to income of high-tech personnel from small- and medium-sized enterprises, or in fields that really need encouragement, in 2017 and 2018,” Hue said.

In other developments, tax solutions to support start-ups received a green light from the government. If approved by the National Assembly, start-up firms can enjoy a preferential CIT level of 17 per cent, lower than the common rate of 20 per cent, at least for the period between 2017 and 2018.

According to MoF, “start-ups” will be defined later by the Ministry of Planning and Investment and the Ministry of Science and Technology.

Listed in the draft solutions, the proposed tax incentives are temporary solutions to be applied between 2017 and 2020. During this period, the government will assess the effectiveness of the incentives and then will consider legal amendments for long-term implementation.