Income tax cut will help big businesses only: expert

September 23, 2020 - 10:00
Professor, Doctor Phạm Thế Anh talks to Vietnam Finance magazine on the proposal to reduce 30 per cent of income tax for all Vietnamese amid the pandemic

 

Professor Phạm Thế Anh. — Photo vietnamfinance.vn

Professor, Doctor Phạm Thế Anh talks to Vietnam Finance magazine on the proposal to reduce 30 per cent of income tax for all Vietnamese amid the pandemic

Do you support the proposal to cut down 30 per cent of income tax for all Vietnamese enterprises by the Board for Private Economic Development Research?

Frankly speaking, I don’t support the proposal.

I remember that in the past I objected to the Government’s decision to grant preferential tax policies for enterprises’ income tax. Such policies do not help the enterprises much as they only benefit those that are not financially affected. I’m sorry to say, enterprises which are seriously hit by the current economic situation do not benefit from that decision.

The results of a survey conducted by the Board for Private Economic Development Research (or called IV Board), managed by the Government’s Advisory Council for Administrative Procedure Reform, has pinpointed that the hardest challenge Vietnamese enterprises face right now and in the coming months is that they have received only about 20 per cent of the usual number of orders from their clients.

Meanwhile, they still have to pay monthly wages, social insurance, medical insurance and trade union fees for their employees. These payments account for some 72 per cent of their sales revenue. Meanwhile, the enterprises still have to pay both the principal and interest rate of their debts from the bank, plus regular expenses to run their business.

All the enterprises have asked the Government to adopt policies to help them overcome this critical moment. In their opinion, the Government’s decision to give them a preferential income tax payment is not really necessary.

So in your opinion, what is the driving force for the IV Board to come up with such a proposal?

Most of the members of the IV Board are representatives for big enterprises in Việt Nam. These firms are not on the list of enterprises that were granted preferential policies in the first drive. That’s why the proposal this time will bring about benefits to big enterprises, not the whole country’s economy.

All in all, for the interest of the enterprises community as well as for the national interest, the proposal is not really suitable.

What do you think about the policy to support enterprises by granting preferential income tax treatment?

The third survey conducted by the IV Board was done following the return of the COVID-19 pandemic. Due to the pandemic, up to 20 per cent of Vietnamese enterprises have stopped operations, 76 per cent of enterprises have failed to balance between their income and expenses, 2 per cent of the enterprises have declared bankruptcy and only 2 per cent of enterprises have stated that they have not been affected by the pandemic.

That’s why in my opinion, the preferential income tax policy will only bring about benefits to the 2 per cent of enterprises which have not been affected by the pandemic.

The decision to reduce income tax for enterprises across the board will drain the public financial resources while breeding an inegalitarian atmosphere among the business community while deteriorating the business environment.

Enterprises which are on the verge of going bankrupt will feel that they are badly treated by the Government. They will say the Government only pays attention to big enterprises.

We agree that this year the State budget will be in deficit. As a result, the Government will have to borrow money to compensate for the deficit. That’s why, in my opinion, the support from the Government should be considered an encouragement for enterprises only.

What do you think about the Government’s decision to lower the interest rate to support enterprises?

Many banks have redundant capital, yet they don’t lower their lending interest rates. This means that our monetary policy is not designed to support enterprises which are in special circumstances. So, I think, the difficulty that Vietnamese enterprises confront right now is not simply a shortage of investment capital, but the output/consumption market for their products.

On the other hand, for enterprises still maintaining their normal production in the COVID-19 pandemic, they will benefit from the low interest credit offered by the banks. If this is the case, why should the Government’s fiscal policy support these enterprises?

The Government should use this financial resource to support the people who lost their jobs and enterprises which are facing difficulties in maintaining their normal production, not simply to lower their enterprises’ income taxes. — VNS

 

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