Draft law to cut corporate tax rate to 23%
HA NOI (VNS) – Corporate income tax rates will fall from 25 per cent to 23 per cent in 2014, under a draft revision to the Law on Corporate Income Taxation issued yesterday by the Ministry of Finance.
The draft would also ease controversial limits on tax-deductible expenses for advertising and promotion. Under current law, such expenses exceeding 10 per cent of all costs of the enterprise are not deductible. The proposed law would lift this limit to 15 per cent.
If passed, the revised law would put Viet Nam's corporate tax rates on a level closer to that of other countries in the region and help make the country more attractive to foreign investors, the ministry said.
"With the change, the country's corporate tax rates will be equal to those in Thailand and lower than those of China, Indonesia, Malaysia and the Philippines," the ministry said. However, it estimated that the State budget would lose roughly VND12 trillion (US$ 571 million) in the first year of applying the lower rates.
Under the proposed changes to the law, small- and medium-sized enterprises (SMEs) with earnings of less than VND20 billion and a workforce of fewer than 200 workers would enjoyed an even lower rate of 20 per cent.
SMEs account for nearly 88 per cent of all enterprises nationwide and contribute about 40 per cent of the country's total tax revenue, according to the Viet Nam Chamber of Commerce and Industry.
Preferential rates of 10-20 per cent are also proposed for firms in the fields of education, healthcare, culture, and environment, as well as agricultural co-operatives and credit unions.
Under the proposal, however, preferential rates would not apply to real estate or mining companies, companies deriving income overseas, or for companies providing services subjected to special consumption taxes.
To discourage debt defaults, the proposed revision to the law would include a provision that interest costs would not be deductibe if amounts owed by firms exceed four times equity. The rate for banks and credit institutions would be 10 times. However, these provisions would not take effect until 2016, giving business two additional years to anticipate the tax effects of the changes.
The Viet Nam Chamber of Commerce and Industry strongly supports the proposed changes to the corporate tax laws. Chamber president Vu Tien Loc said that the current tax rate of 25 per cent was higher than other countries in the region. Thailand recently cut its corporate income tax from 30 per cent to 23 per cent, while rates applied to SMEs in Japan, South Korea and Taiwan all hover at around 15-17 per cent.
"A tax rate of 20 per cent is reasonable," Loc said, making the case that the tax cut would offer a chance to many enterprises to increase their investments and create jobs. According to a recent survey conducted by the chamber, 30 per cent of SMEs had closed down, and the rest were in deep difficulties. It was estimated that 50,000 enterprises would go out of business this year. – VNS