Small Enterprises Set to Benefit from Corporate Income Tax Rate of 15-17%?
The Ministry of Finance has proposed to reduce the corporate income tax rate for small and micro enterprises to 15-17%, depending on the previous year's revenue, instead of applying a flat rate of 20% as currently in place.
Recently, the Ministry of Finance issued Document No. 5949/BTC-CST to central ministries, agencies, and provincial and municipal People's Committees regarding the solicitation of opinions on the draft Corporate Income Tax Law.
One of the key highlights in this revision of the Corporate Income Tax Law is the application of an appropriate corporate income tax rate for small and micro enterprises.
NO FLAT TAX RATE
Over the past ten years, Vietnam has gradually reduced the common corporate income tax rate in accordance with the planned schedule. From January 1, 2016, the general corporate income tax rate is set at 20%; for small enterprises, the 20% tax rate has been applicable since July 1, 2013.
In comparison with other countries in the ASEAN region, the Ministry of Finance noted that the general corporate income tax rate of 20% is equivalent to the rates currently applied in Thailand, Laos, and Cambodia, and lower than those in the Philippines (30%), Myanmar (25%), Malaysia (24%), and Indonesia (22%). However, Vietnam's tax rate is higher than that of Singapore (17%) and Brunei (18.5%).
The Ministry of Finance believes that alongside changes in the legal system, particularly the Law on Supporting Small and Medium Enterprises, and the fluctuations in socio-economic conditions, there is a need for tax policies tailored to specific groups, including small and micro enterprises, to ensure they do not remain "small forever."
Currently, statistics indicate that of approximately 900,000 active enterprises in Vietnam, nearly 94% are classified as small and micro enterprises. This group requires support policies to encourage development and nurture a sustainable revenue source for the state budget.
As a result, from 2008 to 2012, the Ministry proposed solutions to the Government for the National Assembly to implement tax support measures for this group of enterprises, including a reduction in corporate income tax.
Moreover, from July 1, 2013, to December 31, 2015, small enterprises (with annual revenue not exceeding 20 billion VND) benefited from a 20% tax rate, which is lower than the 25% and 22% rates applied to other enterprises.
In 2020-2021, impacted by the COVID-19 pandemic, these enterprises were granted a 30% reduction in the corporate income tax payable.
To develop a healthy and effective private economy, focusing on small-scale enterprises and encouraging the transition of business households to enterprises, many policies have been introduced. Notably, Article 10 of the Law on Supporting Small and Medium Enterprises states: "Small and medium enterprises are entitled to a temporary reduced corporate income tax rate lower than the standard rate applicable to enterprises as per the corporate income tax law."
Drawing from international experience, the Ministry of Finance has found that small enterprises are consistently a focal point of economic development policies in many countries. Tax support policies are often utilized by countries to establish preferential tax rates for small enterprises, which may be fixed rates or progressive rates based on income levels.
"The majority of countries apply a lower corporate income tax rate for small enterprises, with distinctions based on revenue or taxable income," the Ministry of Finance emphasized.
Therefore, the Ministry suggests researching and adding regulations to the Corporate Income Tax Law to apply a lower tax rate for small enterprises.
REVENUE-BASED TAX PREFERENCES
According to the Ministry of Finance, the proposal to implement supportive policies for small enterprises must be based on the principle of targeting the right beneficiaries to achieve the highest economic and social benefits, avoiding a blanket approach that diminishes the effectiveness of incentive and support policies, especially in the context of restructuring the state budget.
Currently, the Law on Supporting Small and Medium Enterprises and the implementing regulations provide criteria to determine small and medium enterprises based on capital, labor, and revenue criteria.
With these criteria, the number of small and micro enterprises accounts for nearly 94% of the total number of enterprises in Vietnam, and if including medium-sized enterprises, small, micro, and medium enterprises collectively represent over 97% of the total.
If these criteria are used to determine beneficiaries eligible for state support policies, including a lower corporate income tax rate than the general rate, almost all enterprises in Vietnam would benefit from these policies.
Additionally, the Law on Supporting Small and Medium Enterprises (Article 4) only specifies the framework criteria to determine small, micro, and medium enterprises. The specific criteria and beneficiaries for supporting small and medium enterprises must be implemented according to specialized legal regulations, ensuring that the support policies align with the characteristics, objectives, management requirements, and feasibility of each specific support policy.
To ensure that support policies are targeted correctly and effectively, avoiding a blanket approach, the Ministry of Finance emphasizes the need to apply appropriate corporate income tax rates for small and micro enterprises, similar to the rates applied to certain preferential industries or in areas with difficult economic and social conditions.
Based on the above analysis, in Clause 2, Article 10 of the draft law, the Ministry of Finance proposes the corporate income tax rates for small and micro enterprises.
"The revenue used to determine eligibility for a 17% or 15% tax rate in this clause is the total revenue of the preceding year. In the case of newly established enterprises, the Government will specify the total revenue for application," the Ministry of Finance proposed.
The 15% and 17% tax rates stipulated in this clause do not apply to enterprises that are subsidiaries or affiliated companies if the linked enterprise does not meet the conditions for applying the tax rate specified in this clause.
Adding this regulation will help small and micro enterprises accumulate capital for production and business development, enhancing their competitiveness. This is also a prerequisite for small and micro enterprises to grow into larger enterprises.
"The implementation of corresponding tax rates based on the revenue scale of enterprises reflects a time-limited preferential policy (the tax rate changes according to the enterprise's growth) and ensures that the incentives and support align with reality," the Ministry of Finance assessed.
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