Big tax breaks will make us more honest, companies say

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Tax payers at a tax office in Ho Chi Minh City. Photo: Thanh Nien

A higher corporate tax than the regional average and not treating advertising as a deductible expense are putting the squeeze on already troubled firms, business representatives complained at a Tuesday conference in Hanoi.

They said that if Vietnam does not make amendments to its corporate tax law and offers considerable tax breaks, the government will keep losing money by having firms lie about their profits and expenses.

The conference was held by the Association of Vietnam Retailers and Vietnam Chamber of Commerce and Industry (VCCI).

Dinh Trinh Hai, vice chairman of the National Assembly's Finance and Budget Committee, responded to the businesses' demand by saying tax cuts will be made, but they are not likely to be major.

He said the parliament's Standing Committee will announce a road map for new taxes sometime next week.

Under amendments being considered, beginning next year, small and medium enterprises are likely to enjoy a five percent reduction from the current 25 percent corporate tax they are required to pay.

Big enterprises will be taxed 23 percent for two years from the beginning of next year, and the rate will be brought down to 20 percent after.

Hai said developers of low-cost housing will benefit from a preferential tax of 10 percent.

Reductions in value-added-tax are being considered for several business sectors, he added.

The government wants to cut overall corporate tax to 20 percent immediately, but the state budget cannot afford it, Hai said.

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"Each one percentage point cut means a loss of more than VND6 trillion (US$287.35 million) to the state budget, so an overall 5 percentage point cut will deprive the budget of around $1.5 billion," he said.

But business associations at the conference said the government is losing money anyway with many businesses employing different tricks to make their profits look small.

Vu Vinh Phu, chairman of Hanoi Supermarket Association, said the law needs to be changed so that it makes businesses tell the truth. "A policy that does not encourage tax payer to be truthful is a failure," Phu said in a Tuoi Tre report.

He said a tax cut is even more needed at a time when consumption is low and retail revenues have dropped.

A Vietnam News Agency report cited Dinh Thi My Loan, chairwoman of the Vietnam Retailers Association, as saying at the conference that the hesitation in cutting taxes shows that the government is not being helpful when all businesses are in crisis.

Loan said Vietnam has a corporate tax rate higher than other countries in the region.

"The neighbors all have corporate tax at a low level to nurture the economy. Singapore and Taiwan both have a 17 percent tax, Hong Kong 16.5 percent and Thailand has cut its tax to 20 percent from the beginning of this year."

Vietnam should cut the tax to 20 percent for all businesses as soon as possible to help them resume operations and clear stockpiles by stimulating consumption, Loan said.

She said "small and medium enterprises" should be redefined so that more businesses can benefit from the 5 percent tax cut.

The current definition, based on annual income of VND20 billion ($957,800) and less does not suit the economic situation, she said. It puts more than 152,000 businesses, or some 84 percent of the total, into the category, which "does not sound right as even in developed countries, SMEs account for 92 and 95 percent of the businesses."

Conference delegates also wanted the law to raise the cap on the rate of deductible advertisement expenses so that businesses benefit from having smaller taxable incomes.

The Corporate Tax Law currently has the rate at 10 percent and the draft amendment proposes to raise it to 15 percent, but business representatives at the conference called it a "restriction" that should be removed.

Loan called the cap a way for the government to "take as much money from a company as possible," and that it acts like an advertisement ban for businesses.

Pham Thi Thu Hang, general secretary of VCCI, said the cap is one thing that holds businesses back from accessing the market.

Hang said once Vietnam has joined the WTO, businesses need to be left to do what they can in a  competitive environment.

"The current cap has caused businesses to lay back. As they don't see their advertisement expenses are tax-exempted, they will advertise very reluctantly, and stop offering promotions to stimulate consumption," the Vietnam News Agency report quoted her as saying.

Several conference participants said the restriction was a disadvantage for Vietnamese businesses as their foreign counterparts tend to spend a lot on advertising.

"Vietnam is being alone in this" when almost all other countries have no such cap, said Tran Duc Chinh, general secretary of Vietnam Pharmaceutical Companies Association.

Chinh said advertisement is a long-term investment if a business wants to establish a brand name, and the government should support businesses to do this. "Each business knows how they need to invest, and the government cannot make this decision on their behalf."

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