With the aim of analyzing the reasonable points and shortcomings of business proposals for tax policies, Ms. Nguyen Thi Cuc, President of Vietnam Tax Consultants’ Association and an Arbitrator at Vietnam International Arbitration Center (VIAC), has suggested appropriate solutions for economic recovery tax.
- The Private Economic Development Research Board (Board IV) claims that the amount of 10% Value Added Tax (VAT), despite being extended or postponed, still has to be paid at the end of the year, causing many difficulties for businesses. Therefore, Board IV and Enterprises Associations have proposed to reduce the VAT rate from 10% to 5% in order to stimulate demand for activities of industries during and after the pandemic. What are your comments on this issue?
Ms. Nguyen Thi Cuc: Tax reduction is a natural requirement of businesses when facing difficulties to facilitate themselves. However, when reducing taxes, we need to look from two viewpoints: the enterprises and the state budget.
While enterprises only have to balance their revenue and expenditure within their own businesses, the Government must ensure the balance of revenues and expenditures for the "big house" of Vietnam (the Vietnamese market).
Additionally, the Government has also provided medical equipment support packages for other nations.The Government has to bear more and more expenditures during this time, including large and irregular expenses for Covid-19, which are expenses for disease prevention and treatment, such as costs for quarantine and purchase of domestic medical equipment, cash payments for workers suffering from adversities and unemployment due to the epidemic.
In fact, the Government is suffering a "loss" because of its huge expenses while the revenues are decreasing. The launch of tax extension package and land rental support for enterprises with a scale of about 180 trillion dong cut the Government short of revenue during the extended payment of the above amount period.
Besides, during this period, most of the production and business activities are stagnant due to the epidemic, which leads to reduced revenue or even not generating revenue at all, increasing the burden on businesses as well as the State budget (no revenue source).
Therefore, in order to balance the tax solutions packages, we need to take the benefits of the two sides into account. Considering the current situation as well as the recent actions, the Government is obviously prioritizing the interests of enterprises and accepting difficulties on its part for the sake of businesses.
In the fiscal year 2020, the National Assembly has approved the total of revenues and expenditures and state budget deficit. Currently, the National Assembly has not decided this fiscal year. In the previous periods, when the domestic economy was facing difficulties, the National Assembly and the Government also provided packages to stimulate demand or boost production and business, such as 50% reduction of VAT for capital construction activities and essential products facing hardship for a certain period of time. Although it is easy to reduce, it is hard to maintain the integrity of VAT when restoring the former tax rate to ensure production of the businesses and to ensure revenue sources and expenditures.
Regarding VAT reduction, in my opinion, if VAT rate is reduced from 10% to 5%, in principle, the selling price of goods and services will decrease accordingly, which helps to reduce the input cost of the enterprise as well as the consumers.
However, as analyzed above, we also need to consider the hardship the Government is dealing with. Our VAT rates are currently 5% and 10%, while China’s rate is 13% and 17%. Compared to other nations, Vietnam's VAT rate is on average low.
A VAT reduction of 50% will be favourable to enterprises but not the State budget. When the State budget is limited, enterprises and citizens would join hands to help, which has been proven by how businesses and the people support the Government with the costs of fighting COVID-19.
And paying taxes is also a measure that both sides adopt. However, if the enterprises face too much adversity, the authorities will consider submitting a proposal to the Government, for the Government to propose to the National Assembly for consideration and putting forward appropriate solutions.
- Along with the requirement of VAT reduction, the 50% reduction of land rental payment for a period of 9 months for tourism service enterprises (hotels, resorts ...) is also one of the proposals. Do you think this proposal is reasonable?
The current land rental payment also comprises a very large part, but different from the VAT, which is included in the selling price of the product that the consumers bear, whereas, the land rental payment will be charged directly to the costs of enterprises. If the land rental payment is high, the costs will be high accordingly.
In my opinion, a 50% reduction in land rental payment would be more reasonable and more beneficial than a VAT reduction.
In addition, the Government is proposing to the National Assembly to amend a number of matters related to corporate income tax to encourage development of micro-enterprises and small enterprises.
Accordingly, these companies will have the tax rate reduced from 20% to 15-17%, about 5% reduction compared to other typical companies. Plus, for businesses transforming from Individual Business Households to Small Businesses, these businesses will be considered for corporate income tax exemption for several years.
I think the above measures are efficient to support and assist enterprises to overcome difficulties. At the same time, enterprises also need to co-operate with the Government to overcome this time of hardship.