Revising CIT Law to Promptly Remove Business Difficulties

2:36:28 PM | 4/3/2023

To promptly deal with difficulties in business, accelerate administrative reform, approach international CIT practice and ensure steady budget revenue, the Ministry of Finance prepared a report on a draft revision on the Law on Corporate Income Tax (CIT). The draft proposed amending and supplementing four groups of CIT policies.


The revised CIT law is expected to significantly facilitate business development

Practical amendments

According to the Ministry of Finance, the CIT Law was revised twice (in 2013 and 2014) to handle emerging inadequacies and match tax administration requirements in each period. In addition to ensuring an important and stable source of State budget revenue and enforcing income redistribution policy in the economy, the CIT policy plays a particularly important role in stabilizing the macroeconomic setting, dealing with difficulties for enterprises to expand business operations, and boosting exports. The law also helps draw more investment funds into priority sectors, fields and areas in line with Party and State orientation and strategies in each period.

However, domestic and international settings have changed a lot. New forms of e-commerce and new business models are emerging. Vietnam became a member of the Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS) and committed to taking at least four actions. Meanwhile, the CIT Law is revealing some "gaps" in enhancing international cooperation on tax, and handling international tax issues, including contents regarding IF participation and Pillar 2 on Global Minimum Tax in the 2-pillar solution.

The Ministry of Finance affirmed that, as a developing country, Vietnam needs to attract a huge external capital. The participation of countries and the implementation of Pillar 2 will have a lot of influence on the effectiveness of preferential CIT incentive policies in the coming years. Accordingly, it is necessary to review, amend and supplement regulations related to CIT incentives in the CIT Law not to erode the tax base on the one hand and achieve the foreign investment attraction target on the other.

Reviewing entities subject to tax exemption and reduction

In the draft, the Ministry of Finance proposed the revised CIT Law, focusing on addressing four major groups of policies: Expanding the tax base and following international practices by adjusting the scope and subjects of application, and reviewing tax exemption and reduction policies; solving and removing business difficulties, reducing administrative procedures, creating favorable conditions for taxpayers; ensuring the consistency of the legal system; and ensuring international economic integration goals in line with development trends.

Specifically, regarding Policy Group 1 on expanding the tax base by reviewing and adjusting tax incentive policies, the Ministry of Finance aims to address regulatory shortcomings in current CIT incentives; dealing with unfocused tax incentives, restricting the integration of social policies into tax policies, and limiting regulations on tax incentives in specialized laws to increase the neutrality and uniformity of CIT policies. In addition, reviewing and rearranging fields, industries and areas eligible for CIT incentives are nessessary.

To achieve this goal, proposed solutions include reviewing and rearranging appropriate tax incentives, changing resource allocation, expanding the tax base, applying incentives into high value-added production industries, agriculture, farmers, rural areas and poor areas. The Ministry of Finance will also supplement the principle of applying tax incentives to enterprises subject to the global minimum tax (Pillar 2) and the principle of making additional payments for tax differences for Vietnamese enterprises investing abroad, subject to the global minimum tax to ensure the taxing rights of Vietnam. The ministry will amend and supplement regulations on tax incentives for investment expansion; review and supplement special investment incentives to ensure consistency with the Law on Investment and the participation in Pillar 2.

For Policy Group 2 on removing difficulties for businesses and facilitating their implementation to enhance the efficiency of tax collection management, the Ministry of Finance aims to legalize long-effective regulations to ensure policy transparency. At the same time, the ministry will amend and supplement contents on tax exemption and reduction, deductible and non-deductible expenses, tariff rates and tax calculation methods in accordance with international practices.

With respect to solutions to this group of policies, the draft proposes amending and supplementing regulations on tax exemption and reduction, deductible and non-deductible expenses when determining taxable income to remove taxable income to facilitate implementation. In addition, it is necessary to revise regulations on CIT rates for oil and gas prospecting, exploration and production in Vietnam; supplement regulations on tax calculation methods, taking into account detailed regulations on appropriate tax collection rates for enterprises that apply the micro-accounting regime to encourage and facilitate the establishment and operation of micro-enterprises. Furthermore, amendments and supplements to regulations on conditions and principles for applying tax incentives to agriculture, forestry, fishery and salt production will be also taken into account.

Regarding Policy 3 on amendments and supplements to ensure the consistency of the legal system to meet and be compatible with specialized laws promulgated by the National Assembly after the effective date of the CIT Law, the draft aims for the transparency and stability of the CIT Law and consistency with relevant laws. It will help foster the development of small and medium-sized enterprises (SMEs), and stimulate the transformation of business households into corporates to match international practices and development trends. Accordingly, besides adding regulations on lower tax rates than usual for small and micro enterprises to match with the Law on SME Support, the Ministry of Finance will propose solutions to revise regulations on non-deductible borrowing costs on loans lent by entities that are not economic organizations and credit institutions; remove regulations on tax payment places in accordance with the Law on Tax Administration.

Particularly for Policy Group 4 on ensuring international economic integration goals in line with international practices and development trends, the Ministry of Finance will focus on solutions on Vietnam's taxing rights to foreign enterprises that do cross-border business in e-commerce and business on digital platforms. It will supplement regulations on non-deductible expenses for loan interest payments of enterprises with associated transactions on the basis of legalizing regulations on controlling interest expenses.

By Kien Hien, Vietnam Business Forum