Ministry of Finance proposes to reduce enterprise income tax

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By the end of 2019, Vietnam had about 760,000 businesses in operation. Photo: H.D

Reduce income tax for most businesses

In Vietnam, the majority of enterprises are micro and small (accounting for over 93% of the total number of enterprises). The smaller the enterprises are, the more vulnerable they are to the fluctuations of the economy, the business environment, and the competition in international economic integration.

Therefore, in the difficult time before the impact of the recession, the economic crisis in the recent period (2008-2015), the National Assembly has issued a number of resolutions to support and remove difficulties for some enterprises in the group of small and medium enterprises.

In the Law on Corporate Income Tax (amended), it is also determined that small and micro enterprises (enterprises with total revenue of the previous year not exceeding VND20 billion) are subject to a tax rate of 20%, lower than the general tax rate (25%, 22%) in the period of 2013-2015.

According to the drafting agency, the application of preferential policies for each subject should ensure the level of incentives (especially the encouragement of conversion from business households to enterprises), helping businesses to increase their conditions, accumulate reinvestment, develop production and business, improve competitiveness, and not affect the State budget revenue and ensure management.

In order to further encourage business development according to the policy of the Party and the National Assembly, the Government proposed that small and micro enterprises can apply the corporate income tax rates of 17% and 15%, respectively.

These tax rates ensure encouragement and support equivalent to the preferential tax rates prescribed by the Enterprise Income Tax Law currently applied to new investment projects in geographical areas with economic conditions, the field of processing agricultural and aquatic products, and the incentive level higher than the tax rate applied in the period 2013-2015.

Stimulate the conversion of business households

For business households – those who need to focus on encouraging 1 million businesses by 2020, the Ministry of Finance proposes to implement preferential policies for these subjects in the direction of exemption of corporate income tax in two consecutive years since the taxable income for small businesses, micro businesses are newly established from business households.

After this tax exemption period, in case an enterprise is newly established from a business household to implement an investment project in a tax-incentive branch or business, it will continue to enjoy the preferential rate (preferential tax rate, exemption and tax reduction), in accordance with the provisions of the law on corporate income tax.

Upon expiry of the tax exemption period and the period of enjoying tax incentives (if any), the enterprise shall apply the enterprise income tax rate corresponding to its actual conditions as prescribed in this Resolution and the provisions of law on corporate income tax.

In order to ensure the promulgation and implementation of policies to the right subjects, to avoid taking advantage of and review the provisions of law, the draft Resolution clearly stipulates the conditions of business households transformed into enterprises entitled to tax-free incentivespolicies; and cases of non-enjoying preferential corporate income tax policies in the draft Resolution.

This provision is also in line with the provisions of the Law on Supporting Small and Medium Enterprises, the Law on Corporate Income Tax, the Law on Investment, etc., to prevent the abuse of policies through the establishment of new enterprises to enjoy the incentives then dissolve and continue to establish another enterprise to enjoy the incentives; or the establishment of subsidiaries and associates to transfer revenues and profits in order to enjoy the incentives.