Corporate income tax reduction in the offing

Laws - Vietnam will likely slash the corporate income tax from next year to make life easier for enterprises, but will mull raising the value-added tax, said the chairwoman of the Vietnam Tax Consulting Association.

Nguyen Thi Cuc, former deputy head of the General Taxation Department, told a seminar in Hanoi on Tuesday to review the two tax laws, said that the current corporate income tax rate of 25% is average compared to the region, but is still substantially higher that those in Hong Kong and Singapore. Therefore, the tax rate will be slashed to promote business, said Cuc of the Vietnam Tax Consulting Association that was establish in 2008 as a semi-public entity.

Two scenarios have been put forth on the tax reduction, she said.

In the first scenario, the tax rate will be slashed to 23% next year and further cut to 20% from 2016 onward. Meanwhile, the second scenario calls for the sharp fall to 20% right from next year.

To harmonize the interests of both the State and enterprises, the first scenario is preferred, she told the gathering.

Cuc explained that a low tax rate would provide a better financial leverage for enterprises, encouraging them to reinvest their earnings into business that in the end would contribute more to the State coffer.

Regarding possible changes to the value-added tax, Cuc said the dual-rate mechanism – at 5% and 10% for different groups of products and services – should be made a single rate of 10% in the future, likely from 2020.

Another scenario is to maintain the current mechanism, but to apply the high rate of 10% on five key groups of products and services that are currently subject to the 5% rate. It is unclear which groups of products and services will be subject to the higher rate.

Many experts at the meeting on Tuesday uphold the views by the Vietnam Tax Consulting Association. However, these suggestions must be considered by the Ministry of Finance and approved by the National Assembly.