MOF proposes tax reduction to rescue SMEs

MOF’s Tax Policy Department director Pham Dinh Thi has told the press that MOF is awaiting approval from the government and National Assembly on the preferential tax rate of 17% for SMEs, which would be applied for no more than four years, from 2017 to 2020.

Thi said that SMEs need support because they play a very important role in socio-economic development, while SMEs account for a high proportion of total Vietnamese enterprises.

Despite the small scale of operation, SMEs create jobs and contribute to economic development but are the most vulnerable to economic change.

Thi said under CIT Law No 32/2013/QH13, SMEs were understood as those which have revenue of no more than VND20 billion.

However, the draft of the law on supporting SMEs compiled by the Ministry of Planning and Investment submitted to the National Assembly at the October working session, the revenue wad ‘no more than VND100 billion’.

MOF believes that the former criterion (VND20 billion) is more reasonable. If so, the state budget revenue would see a decrease of VND473 billion from CIT collection.

However, if SMEs are defined as enterprises with revenue of no more than VND100 billion, the state budget revenue would decrease by VND1.5 trillion a year.

Thi stressed that MOF still proposes a tax reduction for SMEs in hopes that it will encourage production and business, thus contributing to GDP.

He went on to say that CIT reduction will not seriously affect the state budget revenue, because though the number of SMEs is high, the CIT paid by them is small.

The Vietnam Association of Foreign Invested Enterprises (VAFIE), applauding the MOF’s suggestion on tax reduction, said the decrease in state budget revenue would be offset by indirect taxes and personal income tax (PIT), because enterprises would use their savings from the CIT reduction for re-investment.

VAFIE pointed out that the CIT reduction would help increase revenue collection in the future, because SMEs, with the state’s support, would be able to make higher profits and pay more in tax.

A report showed that the average investment capital of one business registered in the first five months of 2016 was VND7.8 billion. 

VAFIE has suggested that the state should not only offer CIT and PIT incentives, but also other preferences to help SMEs cut costs to optimize profits.