Tax reduction for medium-sized firms may prompt unfair competition: ministry

The Ministry of Finance is preparing a resolution on corporate income tax policies, including a proposal to reduce the tax to 15%-17% for small and micro enterprises only.

Hung said that the ministry wants to ensure the effectiveness of the Government’s incentives and to support enterprises in need.

Micro, small and medium enterprises account for over 97% of the total number of firms in Vietnam. If a tax reduction is proposed for all of them, the proposal would make no sense, Hung said.

Moreover, the competition between medium firms and small and micro ones may be unfair as medium enterprises have more advantages in terms of capital, revenue, markets, workforce and technology than small and micro ones.

In addition, the proposal has been carefully considered, based on the current income structure of the State budget.

As estimated, the tax reduction for small and micro firms will reduce the State budget revenue by VND9.2 trillion (US$394.6 million) per year. The figure will be VND19.5 trillion if medium firms are also subject to the preferential policy.

Further, small and micro enterprises are vulnerable to the volatility of the economy and the fierce competition of foreign firms, so they are in need of more incentives.

Assessing the possible effects of the tax reduction, Hung said that it may put pressure on the State budget in the early stages but will become a driving force for small and micro enterprises to improve their production and business activities, allowing them to contribute more to the State budget in the future.

To ensure the State budget is balanced, the Ministry of Finance will coordinate with the relevant ministries, agencies and localities to deploy effectively all tax laws and to enhance control over tax payments to prevent tax losses and fraud, Hung said.

Under the Government Decree 39/2018/NĐ-CP dated March 11, 2018, an enterprise is categorized as a medium-sized one if it has no more than 200 employees and an annual revenue of no more than VND200 billion in the agriculture sector, or one with no more than 100 workers in the payroll and an annual revenue of no more than VND300 billion in the service or trade sector.