Vietnam - Tax relief proposed to revitalise economy

The Vietnamese Ministry of Finance is recommending to the Government a tax break package worth roughly 25 trillion dong (US$1.2 billion) to help revitalise production and consumer spending during the economic downturn.

The proposed package includes a 30-per-cent corporate income tax reduction this year for small- and medium-sized enterprises and labour-intensive firms in the agricultural, textile and garment, and footwear industries.

A six-month deferment of value-added tax (VAT) is also proposed to help firms have higher cash flows for business and production. The deferment would allow them to pay VAT amounts for April as late as October, with VAT for May and June to be payable in Novemver and December. The ministry estimated the total value of the VAT deferment at 4 trillion dong ($190.47 million) per month.

It also proposed a VAT exemption for employers of industrial zone workers.

The package would also cut land use fees by 50 per cent for businesses in the tourism and services sectors. Other businesses with financial difficulties would receive a two-month deferment in corporate income taxes.

The director of the ministry's Tax Policy Department, Ngo Huu Loi, told Tuoi Tre (Youth) newspaper that it was pressing for comprehensive measures to help revitalise the firms' operations and ease the current high level of unsold inventories seen across a number of sectors and industries.

The former deputy director of the General Department of Taxation, Pham Van Huyen, said slashing VAT should be the top priority. In this time of low demand, policies to boost consumption were needed, Huyen said, noting that in theory, cutting VAT should benefit end consumers more than the businesses themselves.

Overall, he said, the current 10-per-cent VAT was too high and needed to be reduced to improve consumer satisfaction with getting goods at lower prices and enabling businesses to sell more.

Since the Government was only looking at offering a VAT deferral, Huyen suggested that the Government seek approval from the National Assembly to cut VAT entirely or at least broaden VAT exemptions. The tax relief needed to be applicable to a large number of goods to be effective, since VAT accounts for 20 per cent of the country's total tax collections.

Huyen also suggested that Government consider exempting personal income tax for income earned from wages and payments. Many individual taxpayers were facing difficulties after over a year of high inflation and the recent steep hike in fuel prices, he noted.

Meanwhile, the former deputy director of the ministry's Market and Pricing Institute, Vu Dinh Anh, said that tax relief alone was not enough. The biggest problem for businesses was the burden of high unsold inventories in the wake of low consumer demand.

High input costs have forced producers to raise sale prices even as consumer purchasing power remained low. The Government urgently needs to delay the imposition of further increases in electricty rates or petrol prices to enable producers to cut sale prices and boost consumption.

Economist Le Dang Doanh also suggested that the Government should set up a credit guaranty fund to help businesses with established market shares and effective business strategies to access to preferential loans.

VNA

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