Business
enterprises are unlikely to be satisfied with a new draft circular on corporate
income tax (CIT) which raises as many questions as it answers.
The Ministry of Finance (MoF) is seeking
comments on its new draft CIT circular which will replace current CIT circulars
No. 130/2008/TT-BTC dated 26 December 2008 and No. 18/2010/TT-BTC dated 10
February 2011.
Do Trong Hoai, tax director of KPMG Vietnam,
said: "the Vietnamese government has a comprehensive plan for the
development and modernisation of the tax system in Vietnam, and is
progressively implementing this plan over a number of years.
The challenge for the tax authorities is to
carry out tax reforms that align with the commercial environment, which is also
changing all the time. Equally, taxpayers have a challenge in staying up to
date with tax reforms and properly following ever changing tax
regulations".
Hoai also added "Despite various
clarification and guidance introduced in the draft circular, a number of
outstanding concerns which had been raised by businesses for years have not
been addressed in this draft circular".
He specifically mentioned that the current CIT
law explicitly confirms a business entity is "allowed" to carry
forward and offset its tax losses against its taxable profit within five years
from the year following the year when the loss is incurred.
Despite previous guidance from tax
authorities, there is still a remaining question on whether a business entity
entitled to CIT incentives is allowed at its own discretion to carry forward
its losses to any year during the above 5-year limitation period.
The answer should be yes, Otherwise, the
rights of the business entity to carry forward its losses within 5 years under
the CIT law has been disregarded, Hoai said.
In addition, under current CIT regulations,
income derived from investment expansion is no longer entitled to CIT
incentives (i.e. standard CIT rate of 25 per cent will apply).
However, since there definition of investment
expansion is ambiguous, it is likely that income derived in relation to
increase in production capacity (without either increase in investment capital
and/or investment in new production lines) can be classified as
"investment expansion", and subject to standard CIT rate of 25 per
cent even when the enterprise is still under its CIT incentive period.
Also, the draft circular re-confirms that CIT
incentives which had been granted to enterprises (except for tSTC in garment
and textile sectors) meeting export ratio conditions were removed from January
this year, and those enterprises are allowed to select and apply new CIT
incentives which are based on their actual conditions of investment
encouragement (rather than the export ratio one), and existing CIT regulations
during the period from their establishment dates to the date before the
effective date of Decree 24/2007/ND-CP dated 14 February 2007, or as of 31
December 2011. However, the draft circular
does not answer the question whether the new CIT incentives will apply from
January 1, 2012 or from their establishment dates, Hoai said.
Some important changes in the draft include:
Income derived from revaluation of land use
rights which is used for capital contribution into another enterprise will be
allocated into other income for a maximum period of 10 years from the year when
the asset is contributed.
Enterprises are allowed to claim depreciation
expenses in relation to its construction projects such as office buildings,
factories or shops which are built on land leased or borrowed from
organisations, individuals and households (i.e. not directly leased from the
state or an industrial zone) and used for business purposes for CIT purposes
provided that relevant land lease and construction contracts and legitimate
receipts of construction costs are in place.
Commissions paid to sales distributors of
multi-level marketing companies enterprises, and newspapers given to people who
are accredited with their contribution to the Revolution, war invalids, sick
soldiers, officials and/or soldiers working in islands and remote areas, and
areas with particularly difficult social-economic conditions will be fully
deductible (i.e. no longer subject to the cap of 10 per cent or 15 per cent of
the total deductible expenses) for CIT purposes.
VIR
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