Providing a 30 percent income tax cut to all businesses regardless of scale will not be of much benefit since most are making losses, analysts warn.
A government advisory board recently proposed a 30 percent corporate income tax reduction for every business this year over Covid-19 impacts. Vietnam now imposes corporate income tax of 20 percent on companies’ profit.
The proposal, submitted by the Private Economic Development Research Board (Fourth Board), would allow large corporations to enjoy the tax cut, instead of only small and medium companies with revenues of less than VND200 billion ($8.6 million) and less than 200 employees as approved by the National Assembly in June.
Economist Pham The Anh said the proposal was “ineffective and unfair.” A survey by the Fourth Board shows only 2 percent of companies are not affected by the pandemic, while 76 percent are struggling to balance their books.
This means only the 2 percent will benefit from the corporate income tax cut, he said.
If the proposal is approved, businesses that are on the brink of bankruptcy will feel unfairly treated because the government is only helping companies that are making profits, Anh added.
Nguyen Minh Cuong, a specialist with the Asian Development Bank (ADB), also said that businesses do not need corporate income tax cuts when they are making losses.
The Fourth Board defended its proposal with standing deputy director of its office, Pham Thi Ngoc Thuy, saying the proposal does not seek to give big companies any advantage because they themselves are posting losses.
Thuy added the proposal seeks to motivate companies to restructure their business and find ways to make profits (and therefore enjoy the tax break), which will contribute to economic growth.
There are different approaches to how the government should support businesses, and there is no right or wrong approach, she said.
The Vietnamese government has been considering several options to support businesses amid the major damage caused by the Covid-19 pandemic, aiming to ensure positive economic growth this year. Many countries are reporting negative economic growth this year.
In the first eight months, nearly 34,300 companies in Vietnam suspended their business, up 70.8 percent year-on-year, while GDP growth in the first six months fell to a 10-year low of 1.8 percent, according to the General Statistics Office.