Tax reduction will bring more gains than losses

Published: 07/04/2013 03:39



It would be better to reduce tax and collect tax sufficiently, than setting up high tax rates which prompt businesses to evade tax.

The corporate income tax being drafted by the Ministry of Finance stipulates that the popular tax rate would be lowered from 25 percent to 23 percent. Meanwhile, the tax rate of 20 percent would be applied to the small and medium enterprises, i.e. the enterprises with less than 200 workers and total revenue of no more than VND20 billion a year.

The tax reduction seems to be a “favor” for enterprises. However, in the current big difficulties, when most of businesses have been “living from hand to mouth,” they want more than what the Ministry of Finance offers.

Le Diem, Chair of the Vietnam Association of Small and Medium Enterprises in Rural Areas, said in 2000, the business community once proposed to lower the corporate income tax to 20 percent.

“Therefore, the tax cut to 23 percent is a modest reduction, and we want more than this,” Diem said.

Diem said his association, which once had more than 1,000 member companies, has seen the number decreasing by a half over the last two years due to the economic downturn. It is estimated that only 400 enterprises still can exist, while only a few still can make profit.

“We have not received any support from the state in terms of capital or bank loan interest rates. We have been running our businesses with our own capital,” Diem said.

“Meanwhile, the modest incomes have been used to either to pay loan interests or corporate income tax,” he complained.

Nguyen Van Kien, Director of Nam Anh Garment Company, said the 2 percent tax reduction (from 25 percent to 23 percent) would “make nothing” for a business with 1,000 workers like his.

Therefore, Kien has proposed to slash the corporate income tax further to 20 percent. In case the sharper reduction is impossible, he said, the Ministry of Finance should consider applying different tax rates to different groups of businesses. There could be the group of import-export companies, or the group of companies in agriculture and rural development.

The finance ministry, when planning the 2 percent tax cut, has estimated that the sum of money to be collected from tax payers in 2014 would decrease by VND16 trillion. The decrease of VND12 trillion would come from the lowering of the popular tax rate from 25 percent to 23 percent, while the VND2 trillion decrease from the tax reduction to 20 percent to be applied to small and medium enterprises.

Le Dang Doanh, a well-known economist, also thinks that it’s necessary to slash the tax rate further, or Vietnam would lose a big source of income for the state budget.

Doanh said that once businesses have more capital, they would have more driving force to resume their production and make re-investment.

“If the tax rates are lowered, businesses would be ready to pay tax. But if the government insists on the high tax rates, businesses would try to evade tax,” Doanh said.

“Therefore, it’d be better to reduce tax rates to collect tax sufficiently, than losing tax payers,” he added.


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