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| Lower corporate tax rates coming |
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10-APR-2008 Intellasia | Vietnam News page 16 |
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10 Apr, 2008 - 7:00:00 AM |
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Since early this year, the Ministry of Finance has been circulating for public comment its draft Law on Corporate Income Tax as well as a draft decree that would carry out the law in replacement of government Decree No 24/2007/ND-CP of February 14, 2007, which guides the current Law on Corporate Income Tax.
The two drafts embody a number of changes to the current law, changes that would have a significant impact on businesses.
To begin with, the draft law would lower the basic corporate tax rate from the current 28% down to 25%, a move intended to make Vietnam a more attractive destination to foreign investors than its neighbours in the Asean region.
The current law also provides for three preferential tax rates of 10, 15 and 20%, but the draft law only would reduce these to two preferential rates of 10% and 20%, as well as limit those entitled to the preferential rates. The draft decree being circulated in conjunction with the draft law includes a list of business sectors and localities entitled to preferential tax rates, exemptions or reductions.
The draft law also eliminates some preferences granted under the current law. For instance, projects developing traditional industries in locations entitled to investment incentives pursuant to government Decree No 108/2006/ND-CP of September 22, 2006, are currently entitled to a preferential tax rate of 20% for ten-years. Under the draft law, these preferences would be eliminated.
Under the current law, new businesses which provide 500 to 5,000 jobs in areas on the list of locations identified in Decree No 198 as having difficult social-economic conditions are entitled to a preferential tax rate of 15% for twelve years. The draft law would entitle such businesses to a preferential rate of 20% for ten-years only.
The current Law gives enterprises preferential tax rates from the year in which they start business, and they are entitled to tax exemptions or reductions from the first year of turning a profit.
The draft law, however, would commence the duration of tax exemption or reduction immediately, without reference to whether the enterprise was profitable. The clock begins ticking from the first year in which business activity generates revenues.
To the consternation of many enterprises who have argued strenuously for the removal of this cap, the draft Law on Corporate Income Tax retains the 10% cap on the deductibility of marketing and advertising costs and promotional expenses.
Businesses had lobbied the government to at least vary the cap depending on enterprise size and type of business.
To its credit, the draft law and decree do away with a number of points of overlap with other tax regulations. For examples, procedural provisions on tax collection and other matters mentioned in the Law on Tax Administration are not repeated in these drafts. Taxpayers subject to the draft law are organisations and enterprises but not households and individuals, who are expressly governed by the Law on Personal Income Tax.
The draft law also addresses taxation methods applicable to enterprises with offices in multiple provinces.
It provides that, instead of paying taxes only in the province in which the head office is located, enterprises with dependent accounting units in different provinces must apportion tax amounts to be paid in those provinces.
While this provision looks to boost tax revenues in more provinces, there are differences of opinion, some complaining that this provision would create additional burdens on enterprises required to apportion tax payments. The apportion principles and methods would still need to be detailed by the ministry, as they are not covered in the draft decree currently being circulated.
The two drafts are a step towards creating a more sound investment environment and better tax policies to suit Vietnam's emerging economy and booming foreign direct investment. There are, however, a few lingering issues which the ministry needs to reconsider to create a truly attractive and advantageous tax policy for enterprises.
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