Over 700,000 micro- and small-sized enterprises in Vietnam could receive a hefty reduction in corporate income tax payable this year, while more than one million individual taxpayers could be beneficiaries of personal income tax deductions.
Vietnamese authorities are mulling over providing financial assistance for micro- and small-sized enterprises (MSEs) by slashing 30 per cent of their corporate income tax (CIT). Last week, the National Assembly’s Standing Committee agreed to put this plan up for discussion by the legislature’s members before a related resolution on the plan will be adopted.
Minister of Finance Dinh Tien Dung stated that businesses have braced themselves for a long and steep coronavirus-triggered downturn, while market turmoil has disrupted many companies. Therefore, local administrations hoped to boost MSEs affected by the economic fallout of the outbreak, as well as help the hardest-hit industries through tax reduction and deferrals.
Micro-sized enterprises are defined as those with a maximum workforce of 10 people, with annual revenue or total capital of less than VND3 billion ($130,500), while small-sized enterprises are those with a maximum workforce of 50-100 people, with total annual revenue of VND50-100 billion ($2.17-4.35 million).
The proposed CIT reduction would cost the state budget VND15.84 trillion ($688.7 million) if implemented for MSEs, and VND22.44 trillion ($975.65 million) if extended to mid-sized enterprises.
The Ministry of Planning and Investment previously proposed a 50 per cent cut in income tax for small- and medium-sized businesses and an equal cut in VAT for raw materials, goods, and services.
It has also proposed VAT refunds for businesses in industries directly affected by the pandemic like aviation and tourism and a reduction in fees related to road, port, and airport services, as well as vehicle registration. The final suite of policy proposals has not yet been completed and is still subject to discussions with lawmakers.
Just a few days ago, the National Assembly’s Standing Committee adopted a personal income tax (PIT) deduction based on the number of dependents. The deduction for taxpayers will be raised from VND9 million ($390) to VND11 million ($480) per month, while the monthly deduction after each dependent will be lifted from VND3.6 million ($160) to VND4.4 million ($190).
The new scheme will take effect from July 1 and be applicable for this year’s tax period for employment income only, not for capital gains and investment income.
Nguyen Van Phung, director of the Department of Tax Administration at Large Enterprises from the General Department of Taxation, told VIR that PIT deductions would be applied to all employees, including those who work for foreign-invested enterprises.
According to the Ministry of Finance (MoF), there are around 6.89 million individual taxpayers, with the total PIT collected reaching over VND79.22 trillion ($3.44 billion) in 2019. However, the MoF estimates that if the proposal is implemented, the annual budget will constrict by about VND10.3 trillion ($447.8 million).
In April, the government enacted Decree No.41/2020/ND-CP on extending the deadline for tax and land use fee payments by an additional five months from the original deadline. Under which, the nationwide deferral is estimated to be VND180 trillion ($7.83 billion) in temporary liquidity, giving more than 700,000 businesses financial cushion as they cope with the escalating tension of the pandemic.
However, the lack of clear guidance could expose taxpayers to more risks, since a mistaken tax deferral can be overturned later on.
“In some cases, it will take three to five years in retroactive assessment to clarify the legality of a tax deferment to a particular company. In the case the extension is unfounded and is turned around, the enterprise will be slammed with a huge bill for unpaid taxes, and of course, further penalties,” warned Nguyen Duc Nghia, chairman of the Ho Chi Minh City Tax Agent Club.
A representative of Vingroup – the largest local conglomerate – also emphasised the urgent need to extend the tax deferral to one year instead of the current five months since the virus has brought the economy to its knees.
Do Quang Hien, chairman of the Hanoi Small- and Medium-sized Enterprises Association suggested, “Authorities should provide more relief such as cutting further tax lines, not only for now but also for the time ahead to encourage production and shore up businesses hit by the outbreak.”
“Speeding up the construction of industrial clusters will also pave the way for smaller and mid-sized groups to recover,” Hien added. VIR
The threshold would now be raised from VND9 million (US$389) per month to VND11 million (US$475).
Vietnam plans to enact a law to fight against the transfer pricing tax in an effort to enforce transfer pricing rules more aggressively, according to Cao Anh Tuan, general director of the General Department of Taxation (GDT).