MoF proposes tax cut for small firms


The Ministry of Finance (MoF) is proposing a regulation that exempts micro and small enterprises from corporate income tax for two years after they have sufficient income subject to taxation.

The regulation would be applicable for micro and small businesses which are established from household firms.

This is one of the proposals the ministry has submitted to the National Assembly relating to tax exemption and reduction policies for micro and small businesses.

Accordingly, the MoF plans to apply a corporate income tax rate of 15 per cent to micro enterprises with annual revenue of less than VND3 billion (US$129,000) and a labour force of less than 10.

A higher tax rate of 17 per cent would be applicable to small enterprises with annual revenue of less than VND50 billion ($2.15 million) and employing less than 100 workers.

Household businesses qualified for tax exemption are required to operate for 12 months from the issuance of the business registration certificate.

The tax exemption period would be calculated continuously from the first year the enterprise has taxable income. In case there is no taxable income in the first three years, from the first year of turnover, the tax exemption period is counted from the fourth year.

In addition, the ministry also proposed that the preferential taxes would not be applied for subsidiaries or associated companies of micro and small firms to prevent them from taking advantage of the policies.

The ministry said the proposal was expected to pave the way to meet the target of having one million enterprises by 2020 by promoting the development of the business community and establishment of household businesses.

Currently, the corporate income tax applied for all businesses is 20 per cent. With the proposal of tax at 15 and 17 per cent, micro and small firms would see their tax bills drop by 3 to 5 per cent.

According to the MoF’s calculations, the tax exemption could reduce the State budget revenue by VND9.2 trillion per year, putting more pressure on the Government’s State budget balance in the short term.

However, the regulation is expected to have big effects on the promotion of production and business of micro and small firms, creating a favourable business environment. It would also help improve transparency and administrative reform. In the long-term, it would facilitate micro and small companies to have accumulation for reinvestment and contributing more to the State budget.

To cover the impact of the regulation in the short term, the MoF is expected to work with other Government agencies in implementing the tax laws and preventing tax losses.

In recent years, many agencies proposed policies to encourage household businesses to establish small firms. According to the Viet Nam Chamber of Commerce and Industry, the country now has around five million household businesses.

By the end of 2018, Viet Nam had around 715,000 businesses. Of which, the small-and-medium sized enterprises accounted for 97 per cent of the total.

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