Tax Incentives Should Reach Right Person, Right Place

The small and medium enterprise (SME) sector plays an important role in Vietnam’s economy as it contributes 43.2 per cent to the gross domestic product (GDP), 31 per cent to exports and 29 per cent to State budget revenues. In this difficult context, many SMEs have shown signs of fragility, and corporate income tax reduction is considered to be a very important support them to overcome difficulties and foster development. At present, this business sector is subject to a tax rate of 20 per cent. If the rate is reduced to 17 per cent, a small business can save a handsome amount for its existence and development.

 

In this regard, the General Department of Taxation admitted that the reduction of corporate income tax to 17 per cent for SMEs will have a positive impact on the sector. Especially, Vietnamese companies will have conditions to sharpen their competitiveness with rivals from other countries because they enjoy lower tax rates than other countries in the region and China. However, experts pointed out that, in addition to corporate income tax reduction, other tax solutions should also be introduced together to enhance the support effectiveness, particularly the transparency of tax calculation costs, which have become a trend in the world and an urgent requirement of Vietnam. Along with a tax cut, authorities need to clearly determine tax calculation costs for easier management and more stable State budget.

 

According to economic experts, along with a tax cut, it is important to reform administrative procedures, correctly determine the right scope of application to better support enterprises. To effectively carry out this tax cut policy, the classification of taxpayers is needed because the application always confronts emerging problems although policy and guidance are very good. For example, SME classification is still controversial. Thus, definitions and criteria, e.g. the scale and area of operation, must be clarified. Specialists also warned that tax authorities must provide clear regulations to prevent some companies from seeking tax policies by transforming themselves into the scope of application, thus causing losses to the State Budget and unfairness in the production and business environment.

 

In this regard, Mr Ngo Huu Loi, Director of Legal Affairs Department under the Ministry of Finance, said that the ministry is placing a strong focus on administrative procedure reform to eradicate cumbersome and onerous formalities for enterprises to facilitate development. The tax sector will apply risk management mechanisms such as the customs sector has performed. Furthermore, enterprises also need to ensure a more appropriate attitude when they work with tax authorities. They should not collude with tax officials to gain illegitimate benefits in tax policy, and must strictly abide by tax policies and procedures. Additionally, companies must raise awareness and knowledge of policy and law systems to minimise tax compliance costs.