Under the Ministry of Finance’s orientation on the amendments and supplementation to the Decree 187/2004/ND-CP on the transformation of State-owned enterprises (SOEs) into joint stock companies, the tax incentive policy for equitised SOEs will possibly be changed in the coming time.
Old policy, smaller State budget
To carry out this decree, the State Bank previously accepted the budget collection reduction by VND2,786 billion from corporate tax cut and exemption. In 2006, as many as 526 SOEs will go public. If the schedule is kept, by the end of this year, 2,767 SOEs will have been equitised, including many influential SOEs with huge capital accumulation, business advantages and profits like banks, posts and telecom firms and insurance firms. Hence, the State Budget will accept a reduction of some VND1,138 billion (US$71.25 million) in 2006. According to the calculation of the General Department of Taxation, if the current policy is kept, the budget collection will be some VND5,000 (US$312.5 million) less due to corporate income tax reduction and exemption, or 5 per cent of the total tax collected from SOEs.
Getting rid of corporate income tax incentives for equitised enterprises but maintaining incentives for loss-making ones
Mr. Nguyen Van Ninh, General Director of the General Department of Taxation, said the corporate income tax incentive policy for equitised enterprises needs amending. According to Ninh’s arguments, the incentive policy for the ownership transformation in SOEs through corporate income tax exemption and reduction is suitable in the past 10 years because this create good conditions for ownership form-changing enterprises to operate equally with enterprises of other economic sectors. On the other hand, nearly all enterprises were previously hesitant in the face of equitisation due to various factors. However, it is not the case now.
In fact, the exemption of corporate income tax in the first two years and the reduction of 50 per cent in the next 2 years after being equitised have led to the considerable State Budget collection shrinkage. For example, only 26 large enterprises to be equitised in 2007 will cause to a budgetary decline by some VND3,000 billion (US$187.5 million). On the other hand, the equitisation of strong firms in insurance, banking, post and telecommunication fields always attracts interest of investors. Therefore, the equitisation process will certainly face no difficulty. The continuation of corporate income tax reduction and exemption is no longer suitable. According to Ninh, tax incentives will only be applied to loss-making enterprises after changing the ownership.
According to the Ministry of Finance, the new decree, which replaces Decree 187, will be amended and have the following contents added: (i) expanding the initial public offering (IPO) via bidding or other forms like negotiated selling via guaranteed issuance or issuance agents, (ii) adding more detailed regulations on collecting and using source of incomes from equitisation and defining the principle for dividing up capital surplus, (iii) clearly defining strategic investors and simultaneously getting rid of the preferential share purchase monopoly for domestic strategic investors in order to form a fair competition for all investors. The proportion of public bidding stakes will be raised to at least 30 per cent of the chartered capital from the current 20 per cent and a certain amount will be dedicated to strategic investors.
Apart from the amendment to the tax incentive policy, the Ministry of Finance will ask the Government to expand enterprises and conditions of equitisation, modify regulations on enterprise asset evaluation and adjust regulations on definition of land-use rights transferred into equitised enterprises. Notably, in order to keep pace of equitisation, the Ministry of Finance also requires the Government to take initiative in defining land-use rights value as asset inventory and categorisation are done.
Lan Anh
Vietnamese
