Ministry proposes lower tax rate for small, micro-enterprises

April 04, 2023 - 08:12
Lowering CIT rates on small and micro enterprises was important as a support to help them overcome the difficult time and have resources for investing in production and business.
The Ministry of Finance has proposed corporate income tax rate on small and micro – sized enterprises to be lowered than the common rate. — Photo

HÀ NỘI — The Ministry of Finance has proposed corporate income tax rate on small and micro-sized enterprises be lowered than the common rate in an effort to support them to overcome the difficult time and promote their development.

The proposal was raised in the report to the Government about the compilation of the draft amended Law on Corporate Income Tax (CITT) which aims to ensure synchronisation with the Law on Supporting Small and Medium-sized Enterprises (SMEs). The tax rate could be fixed or progressive according to the size of the income of small businesses.

According to the Ministry of Finance, small and micro enterprises account for a majority of the total number of existing enterprises and are holding an important role in the country’s socio-economic development.

As small enterprises remain the central goal of economic development policies, many countries offer lower CIT rates for them, the ministry said.

For example, in China, the common CIT rate is 25 per cent while small enterprises are entitled to a preferential rate of 20 per cent.

The common CIT in Thailand is 20 per cent and small enterprises with revenue from 300,000 baht or less would be exempted. A tax rate of 15 per cent is imposed on those with revenue from 300,001 – three million baht and 20 per cent for those with revenue from three million baht and higher.

In Korea, the tax rate is 10 per cent for the first 200 million won, 20 per cent for the taxable income from 200 million won to 20 billion won, and 22 per cent for the taxable income over 20 billion won.

The Netherlands applies a tax rate of 20 per cent on the first 200,000 euro of taxable income, 25 per cent on taxable income of over 200,000 euro.

Agreeing with the proposal, Trần Xoa, director of law firm Minh Đăng Quang, said that proposal of a lower CIT rate on small enterprises had previously been raised in the draft amendment to the Law on CIT 2016 but later abolished.

The Law on Supporting SMEs which was approved and took effect from the beginning of 2018 regulates that SMEs would be given a lower CIT rate than normal. However, there are no specific regulations and SMEs are generally subject to 20 per cent CIT like other companies.

The reductions of CIT for SMEs were implemented some times before following different decisions in each period. For example, in 2020-21, small enterprises were given a reduction of 30 per cent of CIT as support to help them overcome the difficulty caused by the impacts of the COVID-19 pandemic.

The CIT on small and micro–sized enterprises should be lowered to 10-15 per cent, which, he said, would encourage the establishment of new firms and prevent tax avoidance.

Nguyễn Quốc Anh, chairman of HCM City Rubber Plastic Manufacturer Association, said that SMEs accounted for around 97 per cent of the total number of enterprises in Việt Nam and were considered a major growth driver of the economy.

The fact, however, was that SMEs were struggling with the business more than big or FDI enterprises, he said, adding that SMEs were facing difficulties in accessing banking credit and they must bear higher interest rates.

He said that the tax rate on small enterprises should be lowered to 17 per cent and 15 per cent for micro-enterprises.

According to Nguyễn Thị Ngân from Hà Nội Association of SMEs, SMEs expect that the proposal of reducing CIT on them would be approved, which would help them to have resources for investing in production and business, especially in the context of post-pandemic difficulties and increasing uncertainty in the global market.

Fair playground

Nguyễn Đức Nghĩa from HCM City Union of Business Associations said that a fair playground should be created for both domestic and FDI companies.

He pointed out that most FDI enterprises in Việt Nam were provided with preferential tax rates, around 10 and 15 per cent as a tool to attract foreign investment. Meanwhile, SMEs which contributed 45 per cent to GDP, 31 per cent of the budget revenue and created more than five million jobs, were bearing higher rates, which undermined their competitiveness.

SMEs should be given similar preferential rates, he said.

Phạm Xuân Hồng, chairman of the HCM City Textile and Garment – Embroidery Association, said that besides tax reduction, it was necessary to have flexible management policies in response to fluctuations in the economy, such as tax payment extensions and credit packages to support enterprises together with simplified procedures.

The ministry proposed to include the amended Law on CIT in the 15th National Assembly's law and ordinance building programme in 2024 at its seventh meeting.

The draft would be submitted to the National Assembly for discussion at the 8th meeting in October 2024 and for approval at the 9th meeting in May 2025. — VNS