In the first quarter of this year, the number of bankrupt businesses kept rising, showing that they can not afford to make tax payments, say economic experts.
Tax breaks, delays and exemptions for businesses in the current situation are an issue of great concern for policy makers and economic and financial experts.
Tax exemption is essential
According to the Vietnam Chamber of Commerce and Industry (VCCI) and the World Bank (WB), more than 79,000 domestic businesses dissolved last year in Vietnam. Meanwhile, the General Department of Taxation (GDT) says only some 400,000 out of the 600,000 businesses licensed for operation can still afford to pay taxes. This shows that the figure of dissolved businesses released by VCCI and WB is not really accurate. More than 120,000 remaining businesses may have dissolved or suspended their operations.
VCCI says that in recent years, approximately 5,000-7,000 businesses have declared bankruptcy or dissolved each year, 8 times lower than the 2011 level. However, even the number of loss-making businesses last year was not as high as in the early months of this year.
The Hanoi Department of Planning and Investment says 169 businesses in Hanoi went bankrupt in the first two months of this year, 4.3 times higher than the same period last year, while HCM City’s figure amounted to more than 3,000, a ten-fold increase over the same period last year.
Many businesses have been put in a fix due to lack of capital, falling purchasing power and inability to make tax payments and access bank loans to implement new projects.
Dr Can Van Luc, senior adviser and President of the Executive Board of the Bank for Investment and Development of Vietnam (BIDV), says now is not the time to consider tax reduction, as most businesses are making no profits, but to consider tax exemption for them.
Over the past four months, the national economy has still been facing difficulties and challenges as economic growth in the first quarter reached only 4 percent, lower than the same quarter and the fourth quarter of last year.
Despite interest rates being lowered, they are still high, and businesses still have difficulty accessing bank loans, while the growth of industrial production is low and purchasing power falls, leading to large volumes of goods in stock.
Sharing this view, financial expert Bui Kien Thanh says for the time being, the Government should pause collecting new types of fees such as fees for road maintenance and fees for limiting vehicles, to help business through hard times as they are struggling to survive.
The State needs to exempt businesses from value added tax and corporate income tax in 2012 to help them boost production, preserve their own capital and stimulate consumption.
Minister of Finance Vuong Dinh Hue says his ministry has planned to set up a special working group to carefully investigate difficulties businesses are facing to work out proper solutions to support them. The business community is expecting strategic decisions from management agencies enabling them to weather the current difficult situation.
Tax policy needs reconsideration
Dr Nguyen Mai, President of the Foreign Investment Business Association, supposes that tax policy reveals weaknesses that have hindered businesses, particularly private ones, from accumulating capital and improving operational efficiency, as well as competitive capacity. So, tax policy needs to be renewed by mobilizing people’s strength, reducing dependence on the State budget and increasing capital accumulation for businesses to expand production. Accordingly, it is essential to build a new tax system, including value added tax, special consumption tax, export-import tax, corporate income tax and personal income tax.
Judging from the real situation to improve businesses’ competitiveness and corporate income tax policy, Dr. Bui Lien Ha from the Foreign Trade University says the corporate income tax rate in Vietnam remains rather high compared to other countries.
In comparison with the global average tax rate of 27 percent in 2007 and 26 percent in 2008, Vietnam’s tax rate on corporate income is higher or equal to that of nations and territories with higher development levels. The country’s tax rate on corporate income is even higher than that of Singapore (18 percent) and equivalent to the 25 percent rate in China, Hong Kong and Taiwan. Meanwhile, the competitive capacity of businesses in these countries is higher than Vietnamese businesses and they are continuing with their roadmap for tax cuts.
In addition, unclear regulations on tax payment between enterprises and complex tax procedures have caused difficulties for businesses in declaration and took them much time and expense.
To improve businesses’ competitiveness, it is imperative to renew economic policies, particularly the tax policy, which should focus on tax collection from land, real estate business and mining exploitation. Another way is to reduce tax collection from businesses to help them invest more in promoting products and developing trademarks, Mai notes.