Support industry to receive tax cuts

A new government proposal will see CIT slashed for supporting industry firms Photo: Le Toan

The National Assembly last week discussed revisions to the country’s tax laws. Under the draft revision of the current Law on Corporate Income Tax, businesses operating in supporting industries will for the first time benefit from corporate income tax (CIT) incentives.

Specifically, those with new projects will enjoy a 10 per cent CIT for the first 15 years of operations with a CIT exemption for the next four years, and a 50 per cent CIT reduction over the next nine years during this period.

According to the draft, products benefiting from the reduced CIT will be from the electronics, automobile, garment and textile, and footwear sectors. The list of products for supporting industries will be detailed by the government.

Regarding expanded projects within the list, investors will enjoy such incentives if their project design capacity increases 20 per cent against initial capacity, and if the value of their fixed assets grows by at least VND20 billion ($952,400) after coming into operation.

One of the reasons behind this move is that in order to benefit from agreements like Trans-Pacific Partnership, Vietnam-Europe Free Trade Agreement and Vietnam-South Korea Free Trade Agreement, Vietnam’s exports must have at least 60-65 per cent of their materials made in Vietnam.

“It’s very good news for firms like us,” said Nguyen Tai Duong, representative of the Chinese-Vietnamese joint venture Dragon Automobile Company Limited, “because we will put our $50 million project into operation soon and will be able to seek more local suppliers easier, instead of largely importing products from China and Japan.”

Dragon Automobile will manufacture, assemble and import assorted vehicles in the northern province of Lang Son.

“The incentives will help Vietnam lure more foreign supporting industry firms. Currently, these firms are benefiting from import tax incentives, but not CIT incentives,” Duong told VIR.

A source from the Bac Ninh Provincial People’s Committee said more foreign supporting industry firms were expected to come to do business in the province in the near future, thanks to the presence of Samsung and Microsoft and the new CIT incentives.

“Bac Ninh is trying to develop into a modern city with many supporting industry firms and major businesses like Samsung and Microsoft,” the source said.

However, according to Duong, there remained a big gap between the enactment of the CIT incentives and the application of them to enterprises.

“Vietnam will not be able to develop its supporting industries if it fails to create a level playing field for firms and remove obstacles facing firms. For instance, firms can’t make profits when interest rates are current at 12.5 per cent,” he added.

CIT incentives have been offered to large-scale foreign invested projects in Vietnam such as Samsung or Intel’s.

For example, since it began operations in Vietnam in 2009, Samsung is entitled to a 10 per cent CIT exemption for the first four years of operations and a 50 per cent reduction for another nine years.

According to the Ministry of Industry and Trade, Vietnam has only 656 enterprises making spare parts. Meanwhile, there are over 58,000 enterprises operating in various industrial sectors.