Vietnam’s tax policies and customs regulations are currently being
positively improved to meet changes in the socio-economy, and to support
businesses during the implementation.
Bui Ngoc Tuan, tax partner of
Deloitte Vietnam, shared with VIR some tax updates and matters enterprises
would encounter in coming times.
In the draft law on Corporate
Income Tax (CIT), the Ministry of Finance reduces the common tax rate to 23 per
cent from the current level of 25 per cent. How do you assess this reduction?
The tax rate reduction would help
business to retain more profit to rotate capital to earn more in the process of
business and production.
It could make the state budget
decrease in the short term. But in the long term, the tax contributions will be
raised because thanks to tax reductions, enterprises would have more finances
to expand business to generate more revenue and eventually derive more taxable
income. Vietnam’s CIT rate is flat and somehow higher than some other countries
in the region.
However, it is noticed that in
developed countries with lower tax rate, the compliance of legal regulations by
tax payers is really good and the tax system is very transparent; therefore,
despite the low tax collection, they still ensure adequate collection for the
budget with fairly estimation.
Meanwhile in Vietnam, lower
corporate profits and fiscal stimulus measures made budget collection lower
than it was expected. Therefore, in recent years, to strengthen compliance
status, the tax authorities had tended to apply a stronger enforcement to
encourage taxpayer compliance and thus collect more tax arrears.
The draft law also raised the cap
on Advertising and Promotion expense from 10 per cent to 15 per cent. Do you
think it is reasonable or not, because previously many foreign invested
enterprises proposed to remove this cap?
This positively shows the
responsiveness of the Government and authorities upon hearing and observing the
obstacles from applying tight tax policies in business community. We see this
as a positive step towards the eventual full removal of the cap.
However, in the aspect of state
management, the cap is necessary to ensure the budget collection and will
restrict enterprises to take advantages of open policies to raise deductible
costs to avoid tax obligation.
Recently, many big foreign
invested enterprises are under tax scrutiny due to some signs of transfer
pricing. What is your viewpoint about this matter?
In fact, transfer pricing is one
of the most significant tax issues faced by taxpayers worldwide especially for
multi-national companies. The matter is that whether or not transfer pricing
structure is considered reasonable and acceptable in accordance with arms’
length basis, which would not cause any issue if the enterprises
distribute/allocate profit fairly in each stage of their supply chain in comparison
with other transactions in the market.
In some sectors with monopoly
characteristics, the tax agency faced with more difficulties to inspect
transfer pricing. Due to inadequate information and data system, and restricted
connection with regional tax agencies, the tax agency had not had enough basis
to prove the signs of transfer pricing.
The Law on Tax Administration
will apply Advanced Pricing Agreement (APA) as a measure to restrict transfer
pricing situation. Do you think this measure will be really effective?
I think in general, the
application of APA is a good trend in anti- transfer pricing in Vietnam.
However, an important point of APA is that it must be accepted by the tax
authorities prior for the parties to implement the transactions, while it is
very difficult to define whether APA is reasonable or not. Therefore, for APA
to work efficiently in Vietnam, it requires much time and the synchronization
of related legal regulations and frameworks.
What do you think about
accounting firms’ responsibility in anti-transfer pricing?
Actually the accounting firms do
not help enterprises to dodge tax. If we see in the positive aspect, developing
a good transfer pricing structure would help optimizing profit generated in
each stage of supply and value chain. Specifically, for enterprises working
with foreign related parties, accounting firms will support them to structure
operating/business model to determine appropriate profit level in each stage,
each country, or each sector to support them making right decision.
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