Vietnam: Further tax support reflecting efforts to empower business
The government is continuing to fuel struggling business performance with a new fiscal initiative in an aim to reach its desired economic growth.
The government last week agreed with the Ministry of Finance’s (MoF) proposal on a plan to reduce taxes, fees, and charges for this year.
Under the MoF’s proposal submitted to the prime minister earlier, it suggested a VAT reduction from 10 to 8 per cent for a number of goods and services, in addition to a 20 per cent reduction in the percentage of goods for VAT calculation for business establishments (both business households and individuals) when issuing invoices for all goods and services subject to VAT.
It is also suggested that the initiative, designed to support people and businesses, should be applied until the end of this year.
It estimated that the policy will result in a reduction of VND5.8 trillion ($246.7 million) on a monthly basis for the state budget’s revenue, or about VND35 trillion ($1.52 billion) for the second half of 2023.
What is more, the MoF has also suggested a decrease in as many as 35 types of fees and charges from July 1 to December 31. The new policy will be submitted to the National Assembly Standing Committee for consideration and permission to issue a resolution on VAT reduction with simplified procedures.
The government last week also promulgated Decree No.12/2023/ND-CP on extending the deadline for paying VAT, corporate income tax (CIT), personal income tax, and land rental for both enterprises and individuals.
The decree stipulates a six-month extension for VAT amounts from the first quarter; a five-month extension for VAT in Q2; four months for July; and three months for August.
When it comes to the CIT, the decree stipulated that payment of this type of tax would be extended for the temporarily paid sum for Q1 and Q2 of the tax calculation period in 2023.
Specifically, the time for payment extension will be three months from the date of ending the CIT payment time under the tax management law. It is estimated that the value of the CIT payment extension will be as much as VND43 trillion ($1.83 billion).
The General Department of Taxation has required provincial and municipal tax departments to disseminate information to taxpayers to promptly implement the deadline for paying tax and land rental.
Taxpayers eligible for the extension shall send a written request for extension of one-time payment of tax and land rental for the entire amount arising in the extended tax periods, together with the time of filing the return in accordance with the law. If the application for extension is not submitted at the same time as the tax return, the deadline for submission is September 30.
Decree 12 reflects the government’s continuous efforts to assist the business community currently hit by massive woes, and to achieve its national economic growth of 6.5 per cent this year. The rate was only 3.32 per cent on-year in Q1.
At the end of January, the government enacted Resolution No.07/NQ-CP on reducing land and water surface rentals for 2022 for those hit by the recent pandemic. The resolution stipulates a 30 per cent reduction in land and water surface rentals in 2022 for organisations, units, businesses, households, and individuals that were directly leasing land from the state under a contract or certificate on land use rights ownership of houses, and other land-attached assets of authorised agencies, in the form of land rental with annual payment.
In Q1, Ho Chi Minh City’s Department of Labour, Invalids, and Social Affairs conducted a survey on nearly 4,000 enterprises based in the city. Results showed that over 1,220 enterprises reported that they have had to make staff cutbacks of nearly 20,000 employees, mostly working in processing and manufacturing, retail and wholesale, vehicle repair, and construction.
Dealing with shrunken markets
In its Q1 report on business performance, the Ho Chi Minh City Business Association also noted that difficulties can be found visibly in almost all economic sectors in the city. For example, the foodstuff processing sector is estimated to suffer from an on-year 2 per cent reduction in revenue, and the rate may double in this quarter.
In garment and textiles, the export turnover reduced more than 8 per cent on-year. Many enterprises are trimming down working time to retain employees and apply solutions to cut down expenditure. Meanwhile, the electricity-mechanical segment faces the same plight, with enterprises suffering an on-year 50 per cent decline in orders, in which export orders are dropping 30-40 per cent.
The wood processing sector witnessed in Q1 an on-year fall of 15 per cent in export turnover, while the rate is estimated to be 45 per cent for many products such as wood chips, wood pellets, and furniture.
More than 40 per cent of surveyed companies in the city reported that they are facing massive difficulties caused by markets shrinking, while 18 per cent said they are hit by an increase in input materials’ prices, and 18 per cent also said they lack capital for investment.
Vietnam’s economy registered low growth in Q1 of 2023, largely due to the contraction of manufacturing exports. The nation’s GDP grew by 3.32 per cent on-year in Q1, slowing down from 5.9 per cent on-year in Q4 of 2022. This registers the second lowest Q1-quarterly growth rate in the past decade.
“The low growth rate was largely due to the contraction of industry (-0.4 per cent on-year) in Q1 of 2023, compared to an average of 5.3 per cent on-year during 2020-2022 and weighed on growth (-0.1 percentage point contribution to GDP),” said the World Bank. “The slowdown in industry mirrors the 11.8 per cent contraction in exports, reflecting weakening global demand.”
In Q1, service sectors grew by 6.8 per cent on-year and contributed 2.9 percentage point to GDP. Agriculture registered a 2.5 per cent growth rate, and contributed 0.3 percentage point to the GDP growth rate in Q1/2023.
According to the latest Business Climate Index (BCI) report released by the European Chamber of Commerce in Vietnam and conducted by Decision Lab over 1,300 member companies, Vietnam’s draw as a foreign direct investment destination remains strong among European business leaders, with 3 per cent more European business stakeholders citing it as one of their top three investment hotspots worldwide.
Overall, precisely 36 per cent of those surveyed ranked Vietnam either first, within the top three, or among the top five investment destinations on a global scale. “Despite this, foreign businesses in Vietnam continue to grapple with regulatory opacity, administrative inefficiencies, and visa and work permit issues. There has been an observable upward trend in the number of respondents pointing out inadequacies in anti-corruption legislation,” the report said.
“To strengthen Vietnam’s appeal as a dynamic investment locale, participants in the BCI reinforced the need for improvements in political stability, regulatory frameworks, and tax and tariff regimes. These measures would go a long way in addressing the concerns of foreign businesses and bolstering investor confidence in the country’s economic prospects,” the report added.
The slowing growth in Q1 of 2023, given a sharp contraction of manufacturing exports, warrants close monitoring. If weaknesses in external and domestic demand persists, the government should consider supporting aggregate demand through an acceleration of public investment disbursement.
Anticipated increases in electricity tariffs and public sector salary in the coming months may exert pressure on inflation. Potential further financial tightening in the US to control inflation could affect exchange rate management, especially as the State Bank of Vietnam has reduced some policy interest rates to support the economy.
Close supervision of the financial sector is critical given continued uncertainties in global financial markets and a slowing domestic economy, including a sluggish real estate sector that constitutes about 20 per cent of financial sector borrowing. Source: World Bank