Vietnam's tax cut proposal receives criticism at legislature

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The Vietnamese government's proposal to cut a variety of taxes raised questions at the National Assembly on the effectiveness of the measures in boosting the economy.

The government is suggesting tax reduction and exemption measures worth VND4.2 trillion ($204 million) in 2011 and VND2.2 trillion in 2012, Finance Minister Vu Van Ninh told the legislature in Hanoi today. The measures aim to "solve difficulties of businesses and individuals and help boost economic development," he said.

The proposed tax measures, which include a 30 percent corporate income tax reduction for small and medium enterprises, may not reach "those in need," according a report from the National Assembly's Finance and Budget Committee, presented by Phung Quoc Hien, head of the committee.

"The biggest challenge that businesses are currently facing is lack of capital, difficulty in getting loans and high lending rates," Hien said in Hanoi today. The majority of firms needing government support don't have any income to benefit from tax reductions, he said.

The tax proposal includes an individual income tax exemption for those whose earnings are at the bottom of the tax ladder. The tax level for those people isn't "too high" to begin with, so the amount of tax reduced won't be significant, according to the legislature's committee.

Stock dividends

The government is also calling for tax exemption on stock dividends and on gains from stock transfers for the period starting on Aug. 1 until the end of 2012 to support a slumping market.

The benchmark VN Index of stocks is down 18 percent in the past year, the world's third-worst slide, on concern price gains will stanch spending, undermine the currency and hurt growth. The index fell 0.9 percent to 413.06 today.

The Finance and Budget Committee supports the proposed tax exemption on stock dividends, as that can help encourage investment. Meanwhile, the suggested tax exemption on stock transfers should be "carefully considered," tax should not be totally exempt and reductions should be allowed only in very necessary cases, Hien said. Because those activities are for profit, such tax exemptions won't be fair to other business areas, he said.

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