Vietnam’s Ministry of Finance (MoF) has proposed to reduce the corporate tax income (CIT) rate from the current 20% to 15 – 17% for small and medium enterprises (SMEs) in a move to buttress domestic companies, local media reported. 

Such move is expected to reduce the state budget revenue by VND9.2 trillion (US$396.8 million) per year. 

The ministry's proposal is part of the government’s efforts to encourage business households to formalize and become enterprises. 

The 15%- CIT rate would be applied for enterprises that have yearly revenue of less than VND3 billion (US$129,393) and employ less than 10 workers, while the 17% is levied on enterprises with revenue from VND3 billion – 50 billion (US$129,393 – 2.15 million) and workforce of less than 100 workers. 

Additionally, in order to prevent large enterprises from abusing the new regulation through the establishment of subsidiaries/affiliates, the MoF requested to rule out these types of firms for the new tax rates. 

According to the MoF, some countries have provided similar incentives for SMEs. China is an example, setting a CIT rate of 20% for SMEs, five percentage points lower than the common rate. 

Other countries such as South Korea, the Netherlands and Brazil do not have flat tax rate but apply progressive CIT.

In South Korea, a W200 million (US$175,942) revenue is subject to 10% tax rate, and 20% tax rate for revenue from W200 million – W20 billion (US$175,942 – US$17.59 million), and 22% for over W20 billion (US$17.59 million). Similarly, the Netherlands sets a tax rate of 20% for EUR200,000 (US$224,551) and 25% for over EUR200,000 (US$224,551). 

Moreover, the MoF also proposed exempting CIT in the first two years for business household-formalizing to become enterprise.

Vietnam has set a target of having one million enterprises by 2020, 1.5 million by 2025 and 2 million by 2030, while the private sector would contribute 50% of total GDP by 2020, 55% by 2025 and 60 – 65% by 2025. 

Hanoitimes