Several seminars are being organized these days to discuss a draft of the amended Law on Corporate Income Tax prepared by the Ministry of Finance, while the National Assembly (NA) Standing Committee is also meeting in Hanoi to scrutinize the draft. As suggested by the Finance Ministry, the tax rate will be lowered to 23% from the current 25%, effective from next January, and should be further slashed to 20% from early 2016. Meanwhile, most economists and entrepreneurs, and even certain national leaders, say the proposed tax cut is too reserve, and the soft rate of 20% should be introduced right from early next year.

The proposal to lower the income tax rate is conceived and quickly surfaces as the country’s economy is falling into the doldrums with numerous enterprises going bankrupt nationwide. Outcries are heard, and the Government agrees to come to business rescue.

However, the Finance Ministry takes the prudent approach to tax reduction, fearing that a steep cut will adversely affect the State budget revenue. In fact, budget revenue in this year first quarter has dwindled by 2.6% year on year, says the local media.

“A reduction of one percentage point in the corporate income tax will result in a loss of VND6 trillion,” Deputy Finance Minister Vu Thi Mai is quoted by Vneconomy as saying in a seminar this week. If the tax cut is 2% as proposed by the ministry, the revenue shortfall will be VND16 trillion in total next year, says the finance official. The shortfall will be colossal if the rate is slashed to 20%.

Dinh Trinh Hai, vice chair of the NA Finance-Budget Commission, echoes the view, saying in Sai Gon Tiep Thi that any tax reduction must be considered on the basis of the State budget balance, and there should be a roadmap to gradually lower the tax rate to 20% by 2016 instead of early next year. If the rate of 20% applies from early next year, the State budget revenue will lose at least VND30 trillion, or nearly US$1.5 billion, he reasons.

Nguyen Sy Dung of the NA Office calculates that if the rate is brought down to 20%, the total shortfall in 2014 will amount to some VND51 trillion, if all other preferential policies also apply accordingly, according to Lao Dong.

Upon opinions that maintaining the high income tax rate will erode the economy’s competitiveness compared to regional countries, Mai of the Finance Ministry notes that the 23% rate is fairly low in the region, ensuring competitiveness to attract investors, according to Vneconomy.

The officials’ calculations are squarely rejected by economists and enterprises.

Thanh Nien, citing official data, says that when the tax rate was slashed in the past, initially from 32% to 28% and 25% now, the State budget revenue has not tumbled, but increased staggeringly. Specifically, the total sum of corporate income tax has shot up from VND52.9 trillion in 2009 to over VND82 trillion in 2010, over VND97 trillion in 2011, and around VND107 trillion last year.

“Such figures are quite different from what were announced by State officials,” says the paper.

NA Chairman Nguyen Sinh Hung, at the start of the ongoing meeting of the NA Standing Committee, advocated a steeper rate cut, according to Vnexpress.

The finance ministry only looks at the tax revenue loss, observes the NA Chairman, but it fails to consider that many more enterprises will thrive and pay more taxes. “If I were the finance minister, I would determine a 20% rate immediately,” he is quoted as saying.

Nguyen Thi Cuc, former vice chief of the General Taxation Department and now chairwoman of the Vietnam Tax Consultants Association, says in Dau Tu that tax reductions in the past have resulted in steady revenue increase for the State Budget, with an annual growth rate of over 10%. “It is because tax reduction encourages enterprises to accumulate capital and expand business, and attract more investors,” she explains.

Quach Duc Phap, a former official of the Finance Ministry, says in Tuoi Tre that the tax rate should be lowered to 20% right from next year as local businesses are finding it tougher to survive economic woes. Tran Du Lich, an NA deputy, utters in the newspaper that “it is already late; please do not hesitate to cut the tax rate.”

Lich says he himself last year suggested a bold reduction to 20% for application right in 2013, and “the Government should see this as a must-do job now.”

It is better to have more taxpayers rather than to enforce a high tax rate with few able to pay taxes, the economist suggests.

Meanwhile, Tran Ngoc Tho, dean of the Finance-Business Faculty of the HCMC Economics University, bluntly puts it in Tuoi Tre that “reducing the tax rate is to save the economy” because there are no other options now.

In the simile mentioned early on, it is wiser to take the option of a well-paid job for long-term development, rather than to take a lump sum of unemployment benefits. The point of argument is whether it is also wiser to sacrifice short-term benefits of budget revenue for long-term development. If yes, it is not much a paradox.

Source: The Saigon Times.