Corporate Income Tax to Fall to 17 Pct in 2017
The Ministry of Finance proposed the Government of Vietnam to lower corporate income tax to 17 per cent from 2017 in a bid to support companies to deal with difficulties and speed up business development, especially small and medium businesses, which is considered a stepping stone for this business sector to develop more strongly in the integrating economy.
Preferential corporate income tax at 17 per cent
The Ministry of Finance proposed applying the new tax rate from January 1, 2017 through December 31, 2020 for small and medium-sized enterprises (SMEs), which have total annual revenue of VND20 billion or less. The base revenue for determining the new tax rate is the revenue of the preceding fiscal year.
The Tax Policy Department under the Ministry of Finance said SMEs are the overwhelming majority in the business community and holding an irreplaceable position in economic development and social stability (accounting for some 50 per cent of GDP). Therefore, tax policy is an important instrument to support SMEs. In fact, they have already enjoyed preferential corporate income tax of 20 per cent 2.5 years ahead of schedule (from July 1, 2013 instead of January 1, 2016) than other enterprises. Further bringing the general tax rate applicable to SMEs to 17 per cent in the 2017 – 2020 period, equal to the preferential tax rate applied to new investment projects in economically and socially difficult areas. This treatment is even higher than that in the 2014 – 2015 phase, thus helping SMEs accumulate investment capital for reinvestment and business development and enhance competitiveness on the one hand and ensuring no impacts on State budget revenues on the other.
In addition to SMEs, this draft resolution also includes business start-ups which will also be imposed a corporate income tax of 17 per cent in the 2017 – 2020 period. According to the Ministry of Finance, the concept of start-ups, particularly innovations, is not specified in legal documents. However, according to international experience, they are individuals, groups of individuals, organisations and businesses are in the process of realising business ideas and forming business models of high added value, rapid growth and technology-based and knowledge.
Therefore, unlike traditional trading and manufacturing companies, technological research and innovative elements in innovative start-ups are very high and their risks are quite high as a result. If they overcome challenges, start-ups can bring in great economic values and even change user habits.
An official from the Tax Policy Department said, start-ups are usually small and medium by nature and the Ministry of Finance thus proposed the tax rate of 17 per cent on them.
Besides, to ensure consistence and appropriateness to start-up characteristics – Income comes mainly from scientific and technological research, the draft resolution clearly states that the tax rate of 17 per cent shall not be subjected on some income specific items such as incomes from capital transfer, transfer of capital contribution, transfer of property, transfer of investment projects, transfer of rights to participate in investment projects, transfer of mineral exploration and exploitation rights; incomes from production and business operations outside Vietnam; incomes from search, exploration and exploitation of oil, gas and other rare resources; incomes from mining activities; incomes from services subject to special consumption tax under provisions of the Law on Special Consumption Tax.
Debt relief for some types of businesses
The Finance Ministry suggested writing down tax debts, deferred payments and fines for taxpayers who actually dissolved, went bankrupt, abandoned business, and froze overdue taxes, late payments of money and fines for similar cases arising from January 1, 2014 to December 31, 2015.
According to statistics, 49 out of 63 courts received and handled 336 applications for declaration of bankruptcy. Among them, courts issued 236 decisions to start bankruptcy proceedings and issued 83 decisions on declaration of bankruptcy. Hence, many companies actually suffered from insolvency, came to dissolution, went bankrupt or abandoned business but they did not follow dissolution and bankruptcy procedures and processes provided in the law. According to the Ministry of Finance, the annual figure accounts for 10 per cent of more than 500,000 active companies now. For that reason, the proposal for relief of overdue taxes and fines for those businesses will reduce burdens of tax collection on tax authorities. Since such tax debts lose liquidity, budgets for monitoring them are not necessary. In addition, the Ministry of Finance added regulations that business codes shall be only granted to founders or representatives of such companies at least two years after the date of dissolution and bankruptcy if they want to start up new businesses.
Also according to statistics, Vietnam now has 1.7 million business households. They all give up their business because of losses. Thus, collecting all debts incurred by business households is impossible because they only have enough assets for ordinary daily livelihoods. Hence, the Ministry of Finance suggested clearing overdue debts and fines of business households which dropped business before January 1, 2014 and froze debts and fines in arrears of business households abandoning business from January 1, 2014 to December 31, 2015. Data from the Ministry of Finance showed that tax and fine debts proposed for relief for taxpayers dropping business and going bankrupt prior to January 1, 2014 were VND7,421.286 billion, including VND6,432.141 billion from companies and VND989.145 billion from business households.
In addition, the draft resolution proposed freezing or remission of overdue fines for some subjects, particularly basic construction companies and State-funded projects whose payments remained unsettled. The value proposed for relief was VND542.525 billion as of December 31, 2015.
The Ministry of Finance said if the draft law is enforced, it will inspire the business community and show the sharing spirit of the government to businesses.
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