Dr. Nguyễn Văn Thân, Chairman of Vinasme: The 15-17% preferential tax rate fails to truly support small and micro enterprises

DNHN - Dr. Nguyễn Văn Thân, Chairman of Vinasme, argues that the proposed 15% tax rate for micro enterprises and 17% for small enterprises lacks sufficient appeal.

Commenting on the draft Corporate Income Tax Law submitted to the National Assembly for consideration during the eighth session of the XV National Assembly, Dr. Nguyễn Văn Thân pointed out that the proposal of a 15% tax rate for micro enterprises and 17% for small enterprises is not particularly attractive.

Since 2013, small enterprises have benefited from a preferential corporate income tax (CIT) rate of 20%, below the standard rate of 22% at the time. However, with the standard rate dropping to 20% in 2016, small businesses are now taxed on par with large corporations. While Vietnam's standard tax rate is not high compared to regional peers, the incentive policy for small and micro enterprises appears to have fallen short of expectations.

The 2018 Law on Supporting Small and Medium Enterprises mandates a lower CIT rate for these businesses, yet with the standard 20% rate in effect since 2016, small and micro enterprises no longer receive substantial incentives.

In the current draft of the amended CIT Law, two preferential tax rates are proposed: 15% for micro enterprises with annual revenue not exceeding VND 3 billion, and 17% for small enterprises with revenue between VND 3 billion and VND 50 billion, excluding subsidiaries or affiliates of large corporations.

Dr. Thân suggests that, to determine the appropriate preferential tax rates, the drafting committee must provide specific impact assessments, including the number of businesses benefiting, the extent of budget savings, potential new business formations, and job creation. Only then will the National Assembly have sufficient grounds to consider feasible, appropriate tax levels.

According to Dr. Nguyễn Văn Thân, the proposed 15% rate for micro enterprises and 17% for small enterprises by the Ministry of Finance is merely encouraging but insufficient to genuinely support and drive growth in this sector. He notes that Vietnam's incentives remain relatively uncompetitive compared to neighboring countries. For example, China applies a 25% standard CIT rate, but small enterprises enjoy a 20% rate, a 5% difference. In Vietnam, small enterprises are only granted a 3% reduction from the 20% standard rate.

The small and micro enterprise community expects stronger incentives, given their role in generating employment and income, particularly for informal workers and uncredentialed individuals, which contributes significantly to social security. Therefore, tax policy should go beyond encouragement and offer substantial reductions, including deeper tax cuts.

While the Law on Supporting Small and Medium Enterprises aims to encourage households to convert into enterprises, nearly seven years have passed with limited progress. Many households and individuals still choose to operate as family businesses due to the lower fixed tax rates. Currently, fixed tax rates are 1.5% of revenue for distribution and goods provision activities; 7% for services and construction excluding material provision; 4.5% for production, transport, and services including material provision; and 3% for other services.

"I believe that if we introduce genuinely attractive preferential tax rates, a large number of households and individual businesses will establish enterprises because the preferential rates would be lower than fixed taxes.

High revenue does not necessarily indicate large profits. In a highly competitive market, businesses must often lower prices, offer discounts, after-sales services, promotions, and marketing to attract customers, so revenue alone does not reflect a company’s performance.

Therefore, rather than taxing revenue, we should consider taxable income (revenue minus allowable expenses). Many countries base tax incentives on taxable income, allowing for either a single tax rate or a progressive tax," Dr. Thân emphasized.

An Thao