Brian Spence

Brian Spence*

It was very heartening indeed to see that at the beginning of August the National Assembly unveiled a resolution to offer small- and medium-sized enterprises (SMEs) a 30 per cent break on their corporate income tax to help them cope with the impact of the COVID-19 pandemic. While only applicable to businesses with total revenues of under VNĐ200 billion (US$8.65 million), SMEs are thought to account for as much as 97 per cent of businesses in Việt Nam, meaning such a move is likely to prove a lifeline to the many hard-hit businesses operating under that level.

The Ministry of Finance has estimated that tax revenues will fall by about VNĐ23 trillion for this year as a result, but although this is a hefty amount with a global recession bearing down on us, I thought the move showed a remarkable degree of wisdom as well as generosity to the business community. In similar style, governments all over the west have been extending support, notably by subsidising workers’ wages via job retention or “furlough” schemes. The costs are undoubtedly immense ($130 billion and counting in the UK), but policymakers are rightly taking a long-term view. If companies go under and workers are laid off permanently at an unmanageable scale, then economic carnage will ensue.

Death and taxes

All this got me thinking about how much of an important – and emotive – subject taxation is.

All the way back in 1789, one of the US founding fathers, Benjamin Franklin wrote: “In this world nothing can be said to be certain, except death and taxes”. And it is as true then as it is now, that both are about as popular as they are unavoidable. Most of us pay our taxes grudgingly, but we must all concede that paying our dues is an absolutely foundational pillar of society. Without taxes on income and profits, it simply couldn’t exist. How else would essential infrastructure and institutions like roads, hospitals and schools exist?

The questions that governments must grapple with are who to tax, how much, when and why, before then “selling” their regime to the populace. Tax authorities do have far-reaching powers, but they must make paying as palatable – and easy to bear -- as possible. There is a very fine balance to be struck if governments are to maximise the “tax take” but avoid all the negative consequences that come with overburdening individuals and businesses. Tempting people to avoid or even evade tax, curbing the investment of businesses and even deterring people from entrepreneurship altogether are very real risks. And in a globally connected, truly mobile world, countries must beware incentivising people and enterprises to simply go elsewhere.

Competing on tax

There are some that argue for taxation to be uniform globally so that jurisdictional “tax arbitrage” becomes a thing of the past. When we see global corporations getting creative with their accounting and domiciliation to minimise their liabilities, it is easy to see why some may favour this. However, I and many others believe it is healthy for governments to have some element of tax competition in view when they set their levels. Keeping things reasonable is in everyone’s interest, from the very highest in society to the lowest, I believe. Indeed, there is abundant evidence that turning the screws on tax rarely increases overall revenues. Even if people and businesses stay put (which history tells us they often don’t) the costs of collecting from an unwilling populace shortly become untenable. These costs are of course political too.

The value, and values of tax

As a career financial advisor, I have spent many years guiding businesses and individuals through the complexities of taxation and I have formed a strong view that transparency and accountability are key (and I know of what I speak, the UK having one of the most labyrinthine codes in the world). If people know exactly what they must pay, but crucially also that these monies are fairly collected and then well spent, life gets easier all round. The better angel in us knows that we must all pitch in if society is to be happy and progress. Harnessing those good instincts is the tricky task governments face.

Taxation of the wealthy and big business is one of the fulcrums on which the forthcoming US elections (and others) will turn, and we can expect tax to become a burning global issue as the recession bites. Arriving at the right answers will call for incredibly nuanced economic, political and humanist debate. Any move, like that the Vietnamese Government has made, which aims to protect commerce and livelihoods should be applauded.

If money makes the world go round, then taxes make it function. However, making tax regimes themselves work is something I’m happy to leave to wiser heads than mine.

* Brian Spence is managing partner of S&P Investments. He has over 35 years of experience in the UK financial services industry as an investment manager, financial planner and M&A specialist. He is a regular contributor to the UK financial press and has a deep understanding of the financial services community. Brian’s column will reflect on all the challenges and opportunities within the Vietnamese market, bringing a fresh perspective to today’s hottest issues. The columnist’s email address is brian@sandpinvestments.com.