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Vietnam looks at giving SMEs a tax break

The only problem is that conflicting ideas of what constitutes an SME may lead to confusion.

The Ministry of Finance has sent a proposal to the National Assembly presenting a number of tax solutions to boost small and medium enterprises (SMEs).  

One of the solutions is to cut corporate income tax from 20 percent to 17 percent. If approved, the proposal will be valid from 2017-2020.

The ministry said that the adjustment will encourage SMEs to grow and use the extra capital for further investment to improve their competitiveness.

The ministry cited examples from other Asian countries like South Korea, Thailand and Singapore, which have made SMEs their top priorities in economic policies.

The ministry added that cutting corporate income tax would not have a major impact on state budget revenue as SMEs only make a small contribution to government coffers.

However, the definition of what constitutes an SME remains unclear.

The Saigon Times quoted a new draft by the Ministry of Planning and Investment as saying that companies recording annual revenue lower than VND100 billion ($4.5 million) will be regarded as SMEs.

Based on this, 95.2 percent of Vietnamese enterprises are SMEs, contributing about VND8.7 trillion ($391 million) to the state budget each year. Should the 17 percent tax duty be approved, the country would lose VND5.2 trillion over four years.

However, the Ministry of Investment's news portal views SMEs as companies whose annual revenue don’t exceed VND20 billion. Under this definition, about 86.2 percent of the local companies are SMEs, paying some 2.7 trillion in corporate tax each year. This would leave a hole in the state budget of around 1.6 trillion over the four-year period.

In addition to measures aimed at SMEs, the Ministry of Finance also suggested a plan to reduce income tax for start-ups, making them exempt for four years and levying a rate of 10 percent for the next 15 years.

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