Businesses concerned over removal of VAT exemptions

The abolition of the 0% value-added tax for export products and services will likely raise product costs and reduce Vietnamese products’ ability to compete internationally, said industry insiders.

The concern was raised by businesses about the scope of the draft VAT law, which has been discussed on the floor of the National Assembly this week.

Bui Ngoc Tuan, deputy director general of tax advisory services at Deloitte Vietnam, said for many, costs may go up as much as 6%, on top of increased expenses on administrative procedures for tax refunds.

He added it took some businesses nearly two years to complete tax refunds, which was “a very, very long time” and has greatly affected their financial performance and cash flow.

"For medium-sized export manufacturing companies in Vietnam, the absolute figure for additional input VAT could reach tens of millions of USD per year, not to mention the complications during tax refund procedures," he said.

Economists said careful consideration is required to ensure balance among the interests of investors, the economy and the government and that implementation must also be gradual to avoid negative responses from investors.

Meanwhile, the corporate income tax on small and micro-sized enterprises might be cut to 15-17% from a current common rate of 20%, depending on previous revenues.

More appropriate tax rates for small and micro–sized enterprises is one highlight of the draft amendments to the Law on Corporate Income Tax, which aims to promote the development of the private economic sector and encourage a transition from business households into enterprises, according to the Ministry of Finance.

The ministry said that most countries apply tax rates lower than the common rate on small enterprises. Tax rates can vary according to revenue scale and taxable income.

In comparison with ASEAN countries, the ministry said that the common tax rate of 20% is equal to that of Thailand, Laos and Cambodia, lower than the Philippines (at 30%), Myanmar (at 25%) and Indonesia (at 22%) but higher than Singapore (at 17%) and Brunei (at 18.5%).

Statistics show that there are about 900,000 enterprises in Vietnam, of which small and micro-sized enterprises account for nearly 94%.

It is necessary to encourage their development to generate revenue for the State budget in the long term, the ministry said.

The ministry is therefore proposing a tax rate of 15% for enterprises with revenues of less than VND3 billion ($117,860) per year and 17% for enterprises with revenues between VND3 billion and VND50 billion ($1.96 million).