Recently, the Ministry of Finance proposed reducing the corporate income tax rate for small and medium-sized enterprises (SMEs). If the proposal is approved, the new tax rate could fall to 15-17%, instead of the current 20%. Accordingly, small businesses would be subject to a tax rate of 17%, while micro-enterprises would be subject to 15%. This proposal is highly anticipated by experts and many businesses.
Why is it necessary to reduce the corporate income tax rate for small and medium-sized enterprises?
Vietnam currently has over 600.000 businesses, with the private sector accounting for nearly 500.000. Of these, over 96% are small and micro-enterprises, with only 2% being medium-sized and 2% large enterprises. Nevertheless, small and medium-sized enterprises (SMEs) are identified as the driving force of growth and the backbone of the economy, creating approximately 1.2 million jobs and contributing over 40% of GDP annually.
However, currently, most of these businesses are facing many difficulties. For example, in the first quarter of 2019, 14.761 businesses temporarily suspended operations, a 20,8% increase compared to 2018. Furthermore, out of 15.331 businesses, 58,4% are awaiting dissolution procedures or have had their business registration certificates revoked as a result of last year's review program.
Economist Pham Chi Lan commented that the high number of businesses ceasing operations or dissolving indicates that there are still "dark sides" in the currently developing economy. This shows that many businesses are forced to withdraw from the market because they cannot withstand the pressures.
According to Mr. Le Xuan Truong (Head of the Tax and Customs Department), "In reality, small and medium-sized enterprises (SMEs) account for a very large number and are the foundation for promoting economic development. Therefore, applying a lower corporate income tax rate to SMEs than the general rate is appropriate." Thus, supporting the development of this group of businesses is of significant importance in the overall economic development of the country.
The Law on Supporting Small and Medium-Sized Enterprises (effective from January 1, 2018) is relevant. And, “for the Law on Supporting Small and Medium-Sized Enterprises to truly be effective and implemented, the Tax Law must be amended. Otherwise, the provisions in the Law on Supporting Small and Medium-Sized Enterprises will be meaningless,” Mr. Truong further emphasized.
Economic experts also agree that, in order to ensure the goal of continuing to promote the development of small and medium-sized enterprises and enhance their competitiveness, the proposal to reduce the corporate income tax rate is appropriate and necessary.
Therefore, To promote the development of small-scale businesses and contribute to the overall economic development of the country, they should receive additional support in legal matters, business environment, human resource training, access to loans and financing, production facilities, trade promotion, and brand building, in addition to reducing corporate income tax rates.
