Reducing Corporate Income tax: The State share difficulties with enterprises

The enterprises highly aprreciate the proposal about tax reduction by the Ministry of Finance. Photo:n T.H

According to the drafting plan of the Ministry of Finance, enterprises with total annual turnover not exceeding 20 billion VND and start-up businesses will be entitled to 17% tax rate instead of 20% as previously applied, with effect from 1^st January 2017 to 31^st December 2020.

The business community has acknowledged that it’s a good signal from the Government in order to join hands with local enterprises for overcoming difficulties, promoting production and business, especially in the context of the difficulties in the economy and falling competitive international economic integration.

Furthermore, Mr. Nguyen Chi Trung, director of GiaDinh Footwear Company Ltd was excited to say that:“This is good news for the business community. With more than 5,000 employees working in footwear production, the Ministry of Finance’s proposal to reduce corporate income tax to 17% from 20%, demonstrates positive support to Vietnamese enterprises increasing competitiveness in integration. This will have a huge impact in the development and growth of enterprises. Companies will be able to reinvest in equipment and machines for production, increase labor productivity, and increased workers’ incomes.

Moreover, Vietnamese enterprises say that the State has shown it is prepared to share difficulties with enterprises. It is very meaningful to the business community. Enterprises are excited at the prospect and look forward to the changes going through the National Assembly so the date for application of reduced tax will come soon.

Additionally, Mr. Le Thanh Man, Deputy General Director of Trade Company Limited Nguyen Hue - An Giang said that the Ministry of Finance proposal to reduce corporate income tax shows that the State has listened and understood the problems of buysiness as well as making apropriate policies, mechanisms and institutions to help businesses grow. "If enterprises develop, the tax industry will grow, and effective business enterprises shall pay increased tax to the State” - he stressed.

Agreeing with Mr Man’s view, Mr. Tran Quoc Dung, General Director of Kien Hung JSC – Kien Giang seafood said, in the context of commodity markets it is very difficult, but the tax reduction will contribute to business profit, increase competitiveness in the market and reduce pressure on costs to allow businesses to perform better.

According to Pieter Pennings, of CEL Consulting, the tax change will support program development for the competitiveness of SMEs in Vietnam, in the first 7 months of 2016, the country has nearly 42,630 enterprises which suspended operations complete sales or entered bankruptcy, against the establishment of 64,000 new firms. Although in the past seven months 16,700 enterprises returned to operations, but according to calculations, every day in Vietnam 200 enterprises suspended operations.

It also means that companies face many difficulties. In particular, access to credit is one of the major difficulties, although the Government has implemented the capital support program for SMEs, but business enterprises cannot always enjoy the benefits of these programs . The main causes include the lack of legal capacity necessary to perform the complicated loan procedures, obstacles on mortgage assets, interest rates and lack of capital for production and business.

In addition to loans, SMEs have difficulties in resolving problems and developing production technology, service providers and business management. Also they often have insufficient capital to reach the above-mentioned technologies, SMEs also often lack expertise and human resource professionals or appropriate knowledge to select and deploy technology, so the reduction in corporate income tax will have a positive impact. With the reduction from 20% to 17% CIT companies will have more resources for new investment, procurement, and production expansion.

According to the experts, SMEs account for 90% of all enterprises, which contribute more than 40% of GDP, more than 20% of exports and about 29% of state budget revenues. Invested enterprises account for more than 30% of the invested capital for society of business area and create jobs for 5.12 million workers. Therefore, reducing corporate income tax is needed to help businesses reduce their tax burden, and create additional growth.